You likely do not know it or see it but for those who use ATM that is not their bank’s, because they need cash for transactions the fees are approaching $5. The Journal reports possible reasons why this is happening. I would like you to consider these and what questions you would pose.
That is overall fee revenues are shrinking due to regulations and there is a need to make up for that. Number of times people visit ATMs are down. And more people find ways to avoid paying fees. Left with the need to make up revenue targets from fees and facing higher cost of operations the banks need to allocate these costs and revenue expectation across fewer customer base in the form of higher prices.
Do they need to?
A moment’s thought should show you the problems with this reasoning.
As 75% of customers find a way to avoid fees – be it to not use cash, get the bank card, get cash in advance from bank branches – those who are left are clearly those
- Who cannot afford the bank card because of other fees and credit history prevent them from it
- Who cannot visit branches to plan ahead – that is these are likely the very people who have a high opportunity cost, lack transportation to visit banks or spend money in places where the bank won’t open a branch to do business.
- Who need cash and cash alone for the purchase occasions
In other words, the informed and high value customers stepped back and the ones left standing in front identified themselves as those who have no option but to pay higher prices.
Yes this is a kind of price discrimination. Is this good or bad? It can be argued that if not for the service offered, the said customers will have no other option to turn to for for their transactions. From that view it is likely good price discrimination.
But the challenge I have in declaring this outright good price discrimination is its origins. Banks see fees as a major revenue source – fees from bounced checks, maintaining accounts, sending paper statements etc. That revenue stream is down to $34.1 billion from its highs of $41.5 billion. Since other fee avenues are shut down they see ATM fees as knob to turn. Why see fees as revenue stream at all?
Shouldn’t pricing be tied to net new value create for customers? Fees are ways to extract value from those who do not have options than as share of value created. After all business model is creating net new value and finding a fair way to share that with customer. Pricing is a way to get your fair share of the value created.
ATM fees are rising not because of costs but because banks have outdated business model. This will be disrupted.