ATM Fees Are Dead! Long Live ATM Fees

Cash machines' usefulness is in decline, but there's a downside to their demise.
Photographer: Ken Welsh/Getty Images

A small gesture of goodwill can go an awful long way.

Australia's big four banks, under pressure from regulators and customers to burnish a tainted image, delivered the public an early Christmas present over the weekend: All charges for ATM withdrawals from accounts at rival banks will be abolished within weeks.

That decision represents a genuine sacrifice.

Australians make about 250 million such "foreign" cash withdrawals a year, creating a fee pool of A$500 million ($398 million) or more at typical charges of A$2 to A$2.50 a pop. Given the way customers migrated from foreign withdrawals when regulations in 2009 first imposed more transparent pricing on such transactions, banks can expect a comparable movement in the opposite direction now. That should further raise costs, without any compensating revenue.

At the same time, there are clear reasons why banks have chosen this approach to win back the affections of customers. Set next to their A$23 billion in non-interest income -- not to mention their A$63 billion in net interest income -- the charges for carrying out other banks' ATM withdrawals are a drop in the ocean.

Deposit fee income in general, the category that includes ATM charges, is barely growing. With Australians increasingly using contactless payments for all but the smallest purchases, cash as a whole is in decline, falling from 69 percent of all transactions in 2007 to 37 percent last year.

Total average withdrawals from the country's ATMs dipped below A$1 million in the March quarter of this year for the first time, marking a decline of almost 50 percent since the late 1990s.

One likely effect of this is that the sheer number of ATMs will start a slow but inexorable retreat. Their numbers have been hardly increasing in recent years, in spite of a concerted push from major banks to shutter branches and get rid of physical tellers.

In-bank ATMs do come with their share of problems -- they're the reason that Commonwealth Bank of Australia is in court defending itself against money-laundering allegations from the government. But they're still more cost effective than independently run machines, since their filling and security charges don't add significantly to a branch's day-to-day expenses.

ATMs' usefulness is already in decline, due to the rise of card-based payments, however the hit to profitability they're about to suffer now as fees are withdrawn will accelerate that process.

When Australia's current fee regime was introduced in 2009 it was largely due to concerns that the lack of stated upfront charges was creating hidden costs for consumers, and entrenching the market power of the big four.

In a future where politicians are complaining about the difficulty of finding cash machines and the rise of the unbanked in remote areas, don't be too surprised if similar concerns lead to pleas to bring them back again.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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