Gonzos, it has been a while since I engaged in a vigorous rant, so in the spirit of the 4th of July and the magnificent fireworks displays that accompany this holiday, it’s time to ignite a barrel full of roman candles, a carton of bottle rockets and possibly launch an array of cherry bombs.
THE TARGET: ATM FEES
In previous articles I have praised the ATM delivery channel and admonished bankers for not effectively and/or creatively leveraging this alternative delivery mechanism. Some of you were leveraging the channel; just not the way, say, a 7-Eleven does.
A Quick Jaunt Down Memory Lane
The automated teller machine was introduced in the 1970s and was primarily housed inside a financial institution’s branch. Initially, banks saw ATMs as a way of saving money. Although technology in the late ‘70s and ‘80s was relatively expensive compared to today’s costs, financial institutions determined that the cost of processing deposits and withdrawals from an ATM was less than employing and training a new teller.
To encourage customers to use these new machines, some banks actually charged “human-teller fees” for a transaction performed via a teller that could have easily been done at the ATM. Consequently, customers quickly migrated to the ATM because who in their right mind would want to pay a “human-teller fee”?
Initially, banks had proprietary ATM networks, in which the bank’s ATM could only be used by a customer of that bank. Wouldn’t you know it, along comes better telecommunications technology, and it didn’t take financial institutions long to form shared ATM networks with other banks. All of a sudden a customer of Bank A could get money out of Bank B’s ATM. This is an excellent example of banks providing a valuable service to their customers.
Just imagine the marketing campaign in the early ’80s: “Bank with us and have access to your money via ATMs across the country.” (Disclaimer: one could only get money out of an ATM where the bank that owned the ATM was a participant in the shared network… but really, who actually reads the fine print in marketing swag?)
By the early ’90s we had become a nation addicted to ATMs. Branches seemed to get smaller, and ATMs were popping up like daisies. Like any addiction, the addict will pay whatever it takes to get a fix (to a point), and like any good drug lord, it didn’t take bankers long to figure this out. Banks began to withdraw their support of the “shared” network concept. After all, why provide free service to customers willing to pay for the convenience of service wherever they happen to be?
Welcome to the Surcharge Nation
Initially, high foreign transaction fees (fees charged to a customer for a transaction conducted at another institution’s ATM) were “justified” by the bank’s need to offset interchange (ATM owner) and switch (network provider) fees. In effect, according to a 1998 study by the Office of Thrift Supervision, only 10 cents out of each $1.20 foreign fee went to cover the switch fee. The balance was split almost equally between the ATM owner and the customer’s bank.
Can you tell my why my bank got 50 cents each time I went to another bank’s ATM?
And consider this. That $1.20 fee of the 1990s is now $3.00 at ATMs owned by some of the big banks. It’s bad enough that a percentage of that fee is being enjoyed by my bank without having to lift a finger on my behalf, but many banks very quietly began imposing an additional foreign transaction fee on their customers when they used a competitor’s ATM. This fee can range from 50 cents to $2.00 above and beyond what the foreign bank charges.
In 10 short years our industry has gone from providing customers a service at no cost to potentially charging fees upwards of $5.00 for customers to have access to their own money! Gonzos, a few choice words come to mind when I think about this, but whatever words I choose will be edited out so just use your imagination.
Gonzonation, what the hell is going on? And why are we letting the big guys get away with this?
Stop the Madness
At the end of the day, it is the Gonzonation and its customers that pay the price for the big guys’ fee gouging. And they’re not just gouging customers who are trying to get money out of their accounts; I recently read an MSNBC article where one of the big banks (sorry friends, I would love to mention the bank’s name but having a bounty on my head in Charlotte, NC is something I would rather pass on) assesses a fee to its own customers who enter a withdrawal amount that exceeds their daily maximum withdrawal limit. For example, a customer with a daily withdrawal limit of $400 who requests $500 gets no money and is punished to the tune of $1.50 fee for asking.
I realize many in the Gonzonation are considering raising their ATM fees, and sadly some of you already have. Granted, the fee income looks good on the books but if you really want to build customer relationships and provide that personalized service we all love to talk about, I say “keep the change” and let customers access their money without charging them for this basic service.
Friends, we are no longer the only game in town when it comes to giving customers access to their cash. Think big retail stores and grocery chains. When our customers use our debit card at the retailer’s point of sale terminal they are given that wonderful “cash back” option. At first, many customers automatically hit the “no” button because – well, it all goes back to that ATM addiction thing. However, the addicts are switching from an ATM dependency to a cash back addiction. Some of you might be thinking, well they can’t get more than $40.
I did a little recon this weekend and journeyed into several stores in the Phoenix metro area to see just how much “cash back” a customer could actually get:
At the end of my venture, I realized I had access to my cash from many different sources outside of my bank’s ATM. The best part? Getting my fix would not cost me a single cent.
Many financial institutions are making a killing off of ATM fees, so much so it seems their business strategy is to simply fee their customers to death. If that is your business strategy, enjoy it while you can because I believe that ride is going to run out of track sooner than you may think.
Don’t get me wrong, folks, I understand we all have businesses to run, and we’ve got to make money. But if financial institutions like USAA, ING Direct, E-Trade and even Charles Schwab Bank can reimburse their customers for ATM fees assessed by other banks and still find ways to make money, what’s stopping you from doing the same thing?
Hit the big guys where it really hurts – take away their customers by joining a surcharge free network like Allpoint, Presto, SUM or MoneyPass and let those marketing gurus do their thing. Sure, you will lose some fee income, but that’s better than losing your customers and you will undoubtedly gain some new ones.
So go ahead, be an Evel banker, and in the immortal words of the old Smith Barney commercial, “Make money the old fashioned way – earn it.”
Honestly, if we don’t stop feeing our customers to death the fireworks you see on the 4th of July may look like the exploding ATM below, and folks – that would simply be unpatriotic.
(Legal disclaimer: this picture is not intended to encourage, entice or even evoke thoughts of dropping a cherry bomb or a pack of bottle rockets into a big bank’s ATM. Besides, the ATM camera would catch you and, well, that’s another story.)
Happy 4th of July, Gonzos. Later,
Cornerstone Advisors can develop a Profit Improvement Plan for your institution that will identify opportunities to improve net interest margin, fee income, expense control and market growth.