Responses are Likely to Vary To BofA's ATM Fee Increase

  Now that Bank of America Corp. has increased from $2 to $3 the surcharge fee it assesses noncustomers at most of its ATMs, other banks and ATM operators are considering how to respond. Some ATM deployers may raise their rates. Others, though, may view BofA's decision as a marketing opportunity.
  Which direction an ATM deployer takes depends on how many ATMs it operates and whether there are competing ATMs in close proximity to its own machines, observers say. Some deployers also will try to develop a rationale for increasing their surcharge fees, weighing whether potential gains would outweigh possible losses.
  That question is not easily answered, especially because opinions differ over why BofA hiked the surcharge fee it charges at the more than 11,000 of its 17,000 ATMs deployed at its banking centers. BofA continues to charge noncustomers $2 per transaction at its 6,300 off-premise machines. BofA also exempted Chicago from the rate hike, citing the city's metropolitan area as an emerging market for the bank.
  Industry reaction to BofA's rate strategy is mixed. "I have no idea why they're doing it," says Samuel C. Li, principal consultant with PA Consulting Group's financial services group. "I don't understand the rationale behind it." PA Consulting is a United Kingdom-based consulting group whose U.S. headquarters is in Arlington, Va.
  One reason for the intrigue is that BofA officials have offered different reasons for raising the fee.
  Christopher Deville, BofA finance executive for checking and debit, said in early October at SourceMedia's ATM, Debit and Prepaid Forum in Carlsbad, Calif., that the bank viewed the higher surcharge fee as a way to convert noncustomers into customers. "Don't want to pay it?" he said of the new $3 surcharge. "Come in and open an account."
  But two weeks later, Betty Riess, a spokesperson for Charlotte, N.C.-based BofA, told Cards&Payments that the reason for the rate hike was not to create a marketing tool. "The ATM channel is a critical channel for our customers," she says. "We want to be sure our own customers get the best access. The rationale for the fee increase is that we invest a tremendous amount in that ATM network for the benefit of our ATM customers."
  BofA has been introducing a costly new feature at its branch ATMs, an imaging system that electronically scans checks that customers deposit into their accounts, eliminating the need to use deposit envelopes.
  Tony Hayes, director of Oliver Wyman Financial Services of Boston, contends the surcharge increase supports both Deville's and Reiss' contentions. He says the rate hike can help BofA increase revenues to recoup the cost of the new check-imaging ATMs. And he believes the higher fee might give noncustomers an incentive to open demand deposit accounts with the bank and thus avoid the fee.
  There is no consensus among experts, though, on whether the higher surcharge might encourage noncustomers to become BofA accountholders or whether consumers will become so turned off by the fee increase that they use other deployers' ATMs to withdraw money.
  Most ATMs impose a surcharge on noncustomers, usually ranging from $1.50 to $2. But some, such as those located at Wawa convenience stores, impose no surcharges. The retailer uses the machines to attract customers into its stores.
  One observer downplays the suggestion that BofA's rate hike will generate more accounts for the bank. "Imposing a fee on outside participants only converts them to members if there's no alternative," says Shel Horowitz, an independent marketing consultant based in Hadley, Mass. "Otherwise, it drives them further away. ... This is attempting and not at all succeeding to put a positive marketing spin on the bank's effort to create a new revenue stream, end of story."
  Li says the higher surcharge might win BofA new customers if its ATM is the only one in an area or it is the only safe place in a neighborhood where someone can get money. "Then the people in that area are hostage to Bank of America," he says. "But that also could cause some community backlash in the area. Consumer groups are going to be up in arms about it."
  And, adds Li, some consumers simply will look elsewhere to get cash. "Consumers tend to vote with their feet," he says. "If they don't like it, they'll go someplace else."
  FEE-HIKE TEST
  That possibility, however, is not preventing some other banks from at least considering raising their own surcharges.
  Wachovia Bank, also based in Charlotte, since August has been running a pilot at 200 of its network of 5,100 ATMs to test noncustomer response to a $3 surcharge. The bank normally imposes surcharges of $1.50 to $2.50.
  Wachovia launched its pilot shortly after BofA increased its surcharge fee at banking centers at the end of July.
  But BofA's action was not the driving force behind Wachovia's pilot, says Liz Costa, a Wachovia spokesperson. "We were aware of it, but we wouldn't say our pilot was in response to it," she says. "We are constantly assessing what is a fair price for the use of our ATMs for noncustomers."
  At the same time, Costa acknowledges, "We are very aware of what our competitors are doing; that's obviously important to us."
  Smaller banks are weighing different priorities. Private Bank of Buckhead in Atlanta, for example, deploys just one ATM. As with many banks, including Wachovia, Private Bank picks up at least a portion of its customers' surcharge costs incurred when using other banks' ATMs. That means the bank itself will have to pay an extra $1 to cover its customers' costs when they use a BofA ATM.
  "For us, that's money well spent," says Charlie Crawford, Private Bank president and CEO, noting the reimbursement helps cement customer loyalty.
  While Private Bank pays the entire cost of surcharges assessed its customers by other ATM operators, some banks limit how much they rebate. Wachovia, for instance, reimburses only up to $6 per monthly billing cycle for surcharge fees customers incur.
  DOMINO EFFECT
  Crawford says Private Bank's ATM, which is located near other deployers' machines, including one BofA operates, costs more to install and operate than it brings back in revenues. The bank deploys the ATM solely for customer convenience.
  Private Bank does not plan to increase its surcharge fee, but Crawford says he would not be surprised if other deployers do. "There's a possibility, like airlines, that one raises the prices and others follow."
  Co-op Financial Services, a Rancho Cucamonga, Calif.-based electronic funds transfer network and transaction processor that serves 2,500 credit unions across the country, hopes to use BofA's surcharge hike as a tool to attract more members to credit unions.
  AD TOUTS OPTIONS
  Prompted by BofA's decision to raise its surcharge fee, Co-op ran two advertisements in USA Today to let consumers know that it operates a nationwide network of 25,000 surcharge-free ATMs. "The reason we did it," says James A. Harnisch, Co-op executive vice president, "was to communicate to people that there was an alternative to the banks and to get them to at least consider joining a Co-op network member credit union."
  Member credit unions do impose surcharges to nonmembers, says Harnisch, "but generally not as much as banks do." None of the credit unions in Co-op's network surcharge each others' members.
  Power Financial Credit Union of Pembroke Pines, Fla., deploys 15 ATMs and competes for customers with BofA, which has a considerable presence in South Florida. Allan Prindle, Power Financial's president and CEO, says it is unlikely the credit union will raise its $2 surcharge fee. Under credit-union philosophy, he says, $2 is a sufficient surcharge.
  Prindle doubts the extra $1 fee will help BofA gain new customers. "I don't think it's going to make people open accounts," he says. "The only reason I can think of for [the fee increase] is that it's a revenue enhancer."
  Ed Lawrence, managing consultant with Auriemma Consulting Group of Westbury, N.Y., says smaller banks that feel threatened by BofA's action might join a large surcharge-free ATM network to offer their customers more convenience and an ability to avoid surcharges. He also raises the possibility that Bank of America might promote its surcharge increase through advertising that suggests, 'You can avoid these fees by becoming a Bank of America customer.'
  HELPING OTHERS?
  Some experts doubt that such a strategy would work. "It's a backwards way to attract customers," says Li. "After all, people aren't dying to go to Bank of America. It's not like a Manhattan night club."
  That is the way John Brough, president and CEO of Chain Bridge Bank of McLean, Va., hopes consumers view the $3 surcharge. Chain Bridge is less than a year old and deploys just one ATM, which imposes a $1 surcharge to noncustomers.
  Brough hopes when consumers see the difference between BofA's $3 surcharge and his bank's $1 fee, they will choose to use Chain Bridge's ATM. "It could bring people to our location, knowing we only charge a dollar," he says. "And in the longer term, it could lead to them becoming our customers."
  BofA's decision to raise its surcharge fee could have a ripple effect across the nation. One impact may be higher fees imposed by other ATM deployers. Some institutions may pursue ties to large, surcharge-free ATM networks to help customers avoid the fees. Still others simply may see their revenue increase as more noncustomers use their lower-priced ATMs.
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