Many observers of community banking say imposing ATM charges on other banks' customers is not just a way to raise noncredit income, but a major new battle in the war for deposits and loyalty.

Ed Crutchfield, chief executive of First Union, summed it up in an interview with USA Today. He said his bank and others with large ATM networks were tired of "subsidizing" the community banks that pass out ATM cards and tell their customers, "You can use these anywhere, so why do you need to move your account to a larger bank?"

What they are saying by the new charges is, "If you want to stay with a community bank instead of moving to us, with our full service, you will have to pay for it."

It is hard to see how this approach can fail to win some community bank customers to larger banks. How can the community banks fight back?

They can, of course, absorb the card issuer's portion of the ATM fee when the depositor uses a different bank, thereby offsetting the charge imposed by the ATM network owner. But this is expensive.

A better approach might be to stress the steps that have kept community bank customers loyal, and to add services to increase that loyalty.

Cross-selling of other services has always been valuable. A customer using two or three services from the same bank - especially if one of them is a trust service - is unlikely to move his accounts. It is just too inconvenient and time-consuming.

Another tactic could be to use the automated clearing house compatibility to a far greater extent than is currently done to capture customer deposits and handle routine bill payments.

To George C. White, winner of the Treasury's 20th anniversary award for outstanding contributions to electronic funds transfer, it is a mystery that the automated clearing house is not utilized more - to lock in customers and provide better service.

Mr. White, chief executive of White Papers in Montclair, N.J., reports that though the United States handles 62 billion funds transfers by check per year, only about three billion direct items go through the automated clearing house network. Yet this is obviously a cheaper and more efficient way of handling funds transfer.

And Mr. White reports that even the Postal Service is getting into the field, by having individuals give it a list of companies to be paid regularly and how much should be sent to each.

He also stresses that if your paycheck, dividend checks, and other income inflows go automatically into your account - and especially if your bills are also automatically paid - the likelihood is slim you will change banks, no matter how much the other organization tempts you with free access to their ATM.

Mr. White stresses that community banks should understand the clearing house network and be able to explain to customers how proper dating of funds transfers will help them avoid loss of float, and how they can make money by using the network. This can be done, for example, by eliminating the half-hour some employers must allow each week under employment contracts for their workers to get to the bank to cash or deposit their paychecks.

Electronic data interchange - a means of handling routing payments that companies make to each other for logistical purposes, manufacturing, supplies, services, and the like - is another area in which the community bank can cement its relationships to businesses.

Yet some community banks do not understand the concept, and charge too much for the service. So much, in fact, that manufacturers who work for the U.S. government, which likes to pay through EDI programs, often recommends that receivers change banks to be able to accommodate government payments for their products and services.

The bottom line: Community banks can counter the ATM fee challenge to customer loyalty without heavy investment in technology and expensive personnel.

Mr. Nadler is a contributing editor of the American Banker and professor of finance at Rutgers University Graduate School of Management.

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