ATM fees

[PolyNewbie]

Banks & Wars

[madmax]

Banks & Wars[/url]

I bet the above won't answer the question.

Are the Conservatives wrong and the banks Right?

[PolyNewbie]

Are the Conservatives wrong and the banks Right?

I would say the banks have no right to charge us service fees for using ATM's - they didn't need to charge us service fees before ATM's when you had to go to a branch and withdraw.

Its really just typical greed. The reduction of reserve requirements have changed banking and required them to be greedier than before.

[guyser]

I would say the banks have no right to charge us service fees for using ATM's - they didn't need to charge us service fees before ATM's when you had to go to a branch and withdraw.

How dare a private enterprise charge a fee for using them. I mean what next, paying for meals in a restaurant? I'll tell you when that happens I am outta this world toot suite !

(any room in your world?)

[August1991]

You believe the Conservative Government and Finance Minister Flaherty are wrong.

I believe they are wrong to get involved in this but I can understand why they are doing it - it's good politics.

I'm sure Flaherty gets umpteen letters every week from people angry about bank fees. No fool, by this action, he gets a headline showing that he's "doing something" about it. It's called motherhood or giving a speech saying that he favours mothers.

Do you expect Flaherty to say that bank fees are too low?

[stevoh]

You are quite wrong. The way in which they will reduce services is by providing a more cost effective alternative and then charging for the original service, forcing customers to choose between a higher fee or the alternative. They have already done this. Once there was no such thing as a transaction limit or inactivity fee, now you have one virtually everywhere. Passbooks have been eliminated. Pretty soon paper statements will go or be charged for. If not reductions in services, then what are they? Yet banks continue to retain customers and continue to be profitable.

Ok, the specific survice they are threatening to reduce is the number of ATM locations. They are already charging for the original service through ATM fees. What more cost effective alternative to using ATM's to access cash will customers have, that also doesn't reduce convenience?

And yes, banks continue to be profitable, but already they have created room for ING and independents who's market share is creeping up due to the various improved services/rates they offer.

The minute you make a service less convenient and don't replace it with another equally or more effective one, you create further room for competition. That is why the threat is hollow.

[Renegade]

Ok, the specific survice they are threatening to reduce is the number of ATM locations. They are already charging for the original service through ATM fees.

No, the ATM fees in question only apply if a non-bank customer uses the ATM. Bank customers do not incur the surcharge. Let me give you an example. Let say a bank has an ATM in a shopping center (but no branch). Lets assume that ATM is used primarily by non-bank customers. If forced to give access without charge to non-customers, what incentive does the bank have to keep that ATM operating. It is likely that operating costs will outweigh any revenue for that ATM.

What more cost effective alternative to using ATM's to access cash will customers have, that also doesn't reduce convenience?

There will soon be a push to alternatives to cash. Such as pre-paid cash cards. Such cards can be refilled without an ATM infrastructure.

And yes, banks continue to be profitable, but already they have created room for ING and independents who's market share is creeping up due to the various improved services/rates they offer.

Yes, but until enough sheep break away and use the competitive offering, banks will continue to be extremely profitable.

The minute you make a service less convenient and don't replace it with another equally or more effective one, you create further room for competition. That is why the threat is hollow.

You are making some vast generalizations. For example, many of the bank's customers are unprofitable. These are the people who have low balances and basic accounts. The revenue generated by the banking plans aren't sufficient to cover the overhead to cover these accounts. The banks would willingly cut services and let competitors take these customers. The only thing that prevents them from moving more agressively to cull unprofitable customers is the further degradation they would suffer in public perception.

[Saturn]

So do you believe this is an election gimmick?

Of course it's an election gimmick. What did Flaherty offer the banks in return for lowering ATM fees? Nothing. Did he threaten them? No. Why the hell would they do it then? He just wants the public to know that he is taking ATM fees seriously (which he isn't) and that he is trying to do something about them (tell the media he is).

[Saturn]

For example, many of the bank's customers are unprofitable. These are the people who have low balances and basic accounts. The revenue generated by the banking plans aren't sufficient to cover the overhead to cover these accounts.

Give me a break! Those accounts are a few dozen bytes in a computer. An account doesn't cost more than a buck a year to maintain. A $50 balance should cover that.

[geoffrey]

For example, many of the bank's customers are unprofitable. These are the people who have low balances and basic accounts. The revenue generated by the banking plans aren't sufficient to cover the overhead to cover these accounts.

Give me a break! Those accounts are a few dozen bytes in a computer. An account doesn't cost more than a buck a year to maintain. A $50 balance should cover that.

The cost would never be accounted for that way, not practically, too much variation in each customers account. If you took the entire personal banking overhead for the bank, and figured out a per account charge, I'm going to say it costs more than a buck a year to maintain.

Total cost, not just marginal. That's how banks come up with these numbers.

[PolyNewbie]

The idea here is that the banks use small seposits to provide the necessary reserves to make loans. Fractional reserve banking requires these deposits to exist. Thats why when you open an account in some banks in the USA you get a free toaster or shot gun.

Now that the reserve requirements have been reduced or elliminated the banks no longer require these small accounts and they can lend money without down payments or collateral. The down payment or collateral provided the necessary assets to meet reserve requirements.

This is creating a debt bubble among Canadian people. Its why people on welfare for $500.00 / month can get credit cards with $5000.00 limits. The idea is to make us go broke, cause a depression and make us the property of the banks. When the economy collapses many people will be in debt and the bankers can exert more control over the population.

When you see people on welfare getting $5000.00 credit cards there must be an explanation for it.

[Renegade]

Give me a break! Those accounts are a few dozen bytes in a computer. An account doesn't cost more than a buck a year to maintain. A $50 balance should cover that.

If all those accounts need is a few bytes, no problem. However those accounts still require access to branches, ATMs, require statements, back-office support, issue paper statements, the bank must still apply anit-money laundering legislation, and know-your-customer regulations on those accounts, and the list goes on.

geoffrey is bang on.

[Topaz]

I was in Home Depot a couple of weeks ago. There were two guys at the till in front of me. One had something large and paid for it. The other one grabs a chocolate bar from a little rack beside the till and whips out his debit card to pay for it. Who knows whether he had to pay a fee but you see this more and more. No wonder the banks are making a killing. I love my bank stocks.

I think I should have made this one a poll.

You too disagree with Flaherty.

So do you believe this is an election gimmick?

Do you really think a any Finance Minister would hurt himself financially, by forcing the banks to get rid of these fees? Remember politicians have investments themselves and would not do anything to hurt themselves. Also, Visa charges 2.50 everytime you withdrawal cash. I got rid of mine!!

[Saturn]

The cost would never be accounted for that way, not practically, too much variation in each customers account. If you took the entire personal banking overhead for the bank, and figured out a per account charge, I'm going to say it costs more than a buck a year to maintain.

Total cost, not just marginal. That's how banks come up with these numbers.

That's how they came up with $500 million dollar profit from account fees and charges. Most of these costs are fixed costs and the banks would be paying them whether they have a million accounts or 2 million. Not paying interest on chequing accounts certainly covers the cost of maintaining those accounts.

[Saturn]

If all those accounts need is a few bytes, no problem. However those accounts still require access to branches, ATMs, require statements, back-office support, issue paper statements, the bank must still apply anit-money laundering legislation, and know-your-customer regulations on those accounts, and the list goes on.

We are talking about personal chequing accounts, which require very little of the above. I don't get paper statements, nor do I ever see anyone at a branch regarding a chequing account (except to open or close an account - which isn't necessary for the banks either). I do all my transactions online and I rarely withdraw cash. Many personal chequing accounts require just a few ATMs, an internet connection and some computer systems. All that is easily covered by the interest on balances that banks don't pay.

[Riverwind]

That's how they came up with $500 million dollar profit from account fees and charges. Most of these costs are fixed costs and the banks would be paying them whether they have a million accounts or 2 million. Not paying interest on chequing accounts certainly covers the cost of maintaining those accounts..

All banks will waive service charges on accounts with minimum balances - i.e. they give credit for customers that forego interest. Service charges are only paid on accounts with little or no cash in them.

[stevoh]

No, the ATM fees in question only apply if a non-bank customer uses the ATM. Bank customers do not incur the surcharge. Let me give you an example. Let say a bank has an ATM in a shopping center (but no branch). Lets assume that ATM is used primarily by non-bank customers. If forced to give access without charge to non-customers, what incentive does the bank have to keep that ATM operating. It is likely that operating costs will outweigh any revenue for that ATM.

But don't all banks do this for each other? I mean, there are no machines that have interac that I can't use. So, sure, while the bank machine in that specific mall, RBC for example, has many other banking customers using it, the Scotiabank machine in another mall has RBC customers using it. So, in effect, RBC has had to invest 0 dollars in purchasing and maintaining the Scotiabank machine, but still has the benefit of the machine for their own customer base.

The incentive that the bank has to keep that apparently "unprofitable" machine functioning in the mall is that somewhere else, another banks machine is creating profit for them with them only having to consume extremely minor network costs.

The fees are not in place because the cost of infastructure and maintenance are too high for customers of a different bank. The fees are in place because the bank is able to generate MORE profit using them, and customers have chosen to pay for the "convenience" of using a different banks machine. The fees do not exist out of cost necessity, they exist out of profit opportunity.

However, do something that effects that convenience, such as reducing location number, and you loose customers. And goodwill, as you have mentioned. The banks will not do that, the threat remains hollow.

There will soon be a push to alternatives to cash. Such as pre-paid cash cards. Such cards can be refilled without an ATM infrastructure.

That push will occur regardless of whether the fees are removed or not. Why? Because it saves more money and increases profitability. And yes, at some point, banks are going to charge fees for recharging cash cards for other banking customers, if they can do it without loosing customer base and goodwill.

Yes, but until enough sheep break away and use the competitive offering, banks will continue to be extremely profitable.

Precisely my point. Removing bank machines and reducing customer convenience will be the "tipping point", where suddenly the customer base does start making other decisions. As you can see through bank fees, people may grumble, but they are willing to pay for that convenience. Reduce convenience, loose customers.

[Renegade]

But don't all banks do this for each other? I mean, there are no machines that have interac that I can't use. So, sure, while the bank machine in that specific mall, RBC for example, has many other banking customers using it, the Scotiabank machine in another mall has RBC customers using it. So, in effect, RBC has had to invest 0 dollars in purchasing and maintaining the Scotiabank machine, but still has the benefit of the machine for their own customer base.

The incentive that the bank has to keep that apparently "unprofitable" machine functioning in the mall is that somewhere else, another banks machine is creating profit for them with them only having to consume extremely minor network costs.

No it isn't quite a reciprocal situation. Some banks have invested in an extensive branch and ATM network, others less so. In a reciprocal arrangement the institutions with the smallest ATM infrastructure would benefit most as it makes the entire competitive ATM network available to its customers. If this reciprocal arrangement were in place, it is an incentive for banks to invest LESS in an ATM network as its customers can essentially poach the ATM access from other institutions.

This reciprocal arrangement is not in place now. Banks and Interac charge each on a per-transaction basis for access to the other's ATM infrastructure. The bank simply pass on those costs to the end customer with a mark-up. If it were precluded from charging the end-customer, it woudl simply embed those fees in other ways, and force customers which use its own ATM network to subsidize others who use the competitors network.

The fees are not in place because the cost of infastructure and maintenance are too high for customers of a different bank. The fees are in place because the bank is able to generate MORE profit using them, and customers have chosen to pay for the "convenience" of using a different banks machine. The fees do not exist out of cost necessity, they exist out of profit opportunity.

It is both. They pass on the cost and add a markup for profit. And the customer IS willing to pay it as evidenced by the growing presence of white-label ATMs.

However, do something that effects that convenience, such as reducing location number, and you loose customers. And goodwill, as you have mentioned. The banks will not do that, the threat remains hollow.

Are you aware that there are less bank-owned ATMs today than we had in 2000? The number peaked in 2000 and has been in gradual decline ever since. link However, the overall number of ATMs, has increased, made up largely by white-label ATMs. The white-label ATMs are only too pleased to take $4.50 fee instead of the $1.50 the banks charge. As customers we seem to be only too pleased to pay them.

Removing bank machines and reducing customer convenience will be the "tipping point", where suddenly the customer base does start making other decisions. As you can see through bank fees, people may grumble, but they are willing to pay for that convenience. Reduce convenience, loose customers.

I am vastly more pessimistic than you that suddenly the customer will be "pushed too far". People have been complaining about banks for as long as I can remember. Simply people's inertia is so high, that despite the moaning and complaining they do, the vast majority of them won't actually move to a competitor. That is why i'm holding on to my banking stocks.

[Riverwind]

If the government did order banks to stop charging ATM fees then I predict that most ATMs will be outsourced to non-banks. The third parties would only make money from these fees and the government could not stop them from charging everyone.

[sideshow]

If the government did order banks to stop charging ATM fees then I predict that most ATMs will be outsourced to non-banks. The third parties would only make money from these fees and the government could not stop them from charging everyone.

Good point. I agree that that is exactly what would happen. And we would probably see an increase in fees, and maybe even less efficient machines-due to every two bit operation coming out with machines and probably not servicing them properly. At least the banks have the means to keep up their ATM's and service them properly.

[Michael Bluth]

If the government did order banks to stop charging ATM fees then I predict that most ATMs will be outsourced to non-banks. The third parties would only make money from these fees and the government could not stop them from charging everyone.

Hasn't happened in the UK.

[Riverwind]

Hasn't happened in the UK.

That is not what I have read:

Public reaction to proposed increases in fees was so strong in 1999 after a campaign launched by Nationwide Building Society and the UK tabloid newspapers that fees were removed altogether for using ATMs at banks, regardless of whether the user is a customer of that bank. [4][5] However, each time a bank's customer uses a rival bank's ATM, the customer's bank has to pay a fee to the rival bank, which the customer's bank absorbs.[6]

There are a growing number of machines in locations such as garages, nightclubs and other venues which do charge transaction fees. The fee charged in 2005 was usually between £1.00 and £1.50[7], but occasionally they have been known to charge up to £5[8] and £10 [9]. There has been some debate in recent years about the location of machines which charge in deprived areas, where the larger banks which would have provided free ATMs have closed branches.[10] Rules surrounding the requirement of ATMs to display any fees incurred by the consumer were clarified in 2005.[11][12]

http://en.wikipedia.org/wiki/ATM_usage_fees

There is another lesson from the UK example: the fees don't go away and the banks will simply raise fees on the chequing accounts to compensate.

[stevoh]

I am vastly more pessimistic than you that suddenly the customer will be "pushed too far". People have been complaining about banks for as long as I can remember. Simply people's inertia is so high, that despite the moaning and complaining they do, the vast majority of them won't actually move to a competitor. That is why i'm holding on to my banking stocks.

Nothing like having a vested interest to sway you towards believing the bank hype about closing ATM locations... You really think they want to open the market to further "white label" ATM's?

Yes, the bank will continue to examine every area of customer bank use in order to extract more profit from wherever they can. Its the nature of their business. However, the nature of a free market is that, once a business is significantly less competitive than other local offerings, things change.

[Renegade]

Nothing like having a vested interest to sway you towards believing the bank hype about closing ATM locations...

I have a vested interest because I believe the banks will do what it takes to maximize profitibality, including closing ATMs if necessary. I have already shown you that they have already done so. My opinions sways where I vest my interest, not vias versa.

You really think they want to open the market to further "white label" ATM's?

Yes. White label ATMs are great for banks. They collect revenue every time you access your account through a white label ATM.

Yes, the bank will continue to examine every area of customer bank use in order to extract more profit from wherever they can. Its the nature of their business.

On this we agree.

However, the nature of a free market is that, once a business is significantly less competitive than other local offerings, things change.

The nature of people, and the high cost and pain of switiching make it likely that customer won't use the leverage the power they have. Time will tell.