FDIC Suggests Banks Should Be Regulated Over High ATM Surcharge Fees

Implications: From 1969-1996 ATMs were owned exclusively by banks and in 1996, the major networks Plus and Cirrus lifted their ban on surcharging and since that time three trends have emerged: 1. banks began "double dipping," charging a surcharge fee for non-customers and charging their own customers' a "foreign fee" when they used another bank's ATM to access their cash, 2. the ATM deployment boom began and ATMs were deployed in retail locations to support the franchise and "for-profit" ATMs were deployed outside the footprint to gain surcharge revenue and 3. the lifting of the surcharge ban opened the door for ISOs (Independent Sales Organizations) to enter the ATM industry to deploy ATMs "off-premise," at locations such as 7-11, Circle-K and numerous other retail locations by deployers such as Cardtronics, TRM and others. ISOs also gained leverage because they could charge a surcharge fee for every transaction and from every customer because they have no cardholders of their own to service.

Analysis: In 2007, Bank of America, Chase and Wachovia began charging a $3 ATM surcharge fee for non-customers using their ATMs to access cash and other banks may follow suit. In 1998, the average ATM surcharge fee was $0.85 cents and as surcharge fees continue to skyrocket, U.S. consumers spent more than $4.4 billion in ATM surcharge fees in 2007, which may be why banks rely on surcharge fees as a revenue generator. Perhaps the FDIC's Bair is correct in her assessment that regulatory oversight may be needed for banks charging exuberant surcharge fees for non-customers.

1.  Regional EFT networks (Electronic Funds Transfer) began permitting surcharging in April 1996, however, surcharging was limited to small pockets of the market because national ATM networks Plus and Cirrus didn't lift their ban on surcharging until later in 1996 and since that time, surcharge fees have continued to rise

2.  Prior to surcharging, ATMs were deployed as a customer distribution channel and with surcharging, the role of the ATM shifted and revenue generation became the name of the game, however, many ATMs struggled to generate sufficient transaction volumes to remain profitable

Takeaway:  Over 10 years later, surcharging appears to be here to stay, unless regulators step in to curtail the high surcharge fees banks are charging non-customers. Many banks are either focusing on branding partnerships to extend their brand beyond their ATM networks to provide surcharge free access for their customers at CVS, Walgreens, Duane Reade and other locations, while other banks are investing in CRM software (Customer Relationship Management) to offer a more personalized ATM experience, with the potential to use the ATM as a sales channel. 10 years from now, we may still be debating whether the ATM remains as vibrant as the last 10 years and/or why do banks charge so much in surcharge fees for non-customers.