Part of the financial reform bill making its way through the Senate could have a big effect on ATM owners.
An amendment sponsored by Sen. Tom Harkin, D-Iowa, would cap ATM surcharges at 50 cents. The national average is currently around $2.00.
The amendment is based on three fundamental misunderstanding about ATM fees:
- That all ATMs are owned by banks or credit unions;
- That the only major cost of ATM ownership is the cost of processing a transaction;
- That ATM fees are not being properly set by the marketplace.
Let’s discuss those in order.
1. While banks may have other reasons for installing and maintaining ATMs, most ATMs in this country are nonbank. They’re privately owned ATMs in grocery stores, gas stations, bars, restaurants and other small businesses across the nation. The merchants that own the machines set the surcharge and keep all of it; it’s their compensation for the cost of providing convenient access to cash.
2. Those costs are real. Besides the cost of the machine itself, there’s the cost of supplying it with power and a communication link, the cost of maintenance, and the labor involved in keeping it loaded with cash and paper.
A $2.00 surcharge allows the typical ATM owner to pay off their initial investment in 6-10 months, and then earn a reasonable profit after that. With a 50-cent surcharge, it could take up to *3 years* to pay off the initial investment, and after that the merchant would earn only a small profit — maybe $100 a month for a typical machine.
No business owner is going to invest that much time and money for such a small return. So if a 50-cent cap were imposed, most nonbank ATMs would simply disappear.
3. The market works just fine when it comes to surcharge levels. Government intervention in market pricing might be justified when the free market is unsable to set fair prices. But in this case the free market is working just fine. ATM surcharges are transparent and easily avoidable, and the sheer number of ATMs means customers always have a choice. They can go down the street to a machine with a lower surcharge, or to an ATM owned by their bank. They can skip the ATM altogether and pay with credit cards or checks. Or they can do what they did before ATMs became widespread: stand in line at the teller window.
You may think that saying “ATMs will disappear” is alarmist. It’s not. How do we know? Because we’ve been there before.
Until 1996, ATM surcharges were illegal. The only ATMs available were owned by banks. Their ATM networks were money losers, but were cheaper than paying human tellers. But because each ATM lost money, they weren’t going to install any more ATMs than absolutely necessary.
Then in 1996, Congress legalized ATM surcharges. And the ATM industry was born. The number of ATMs in the country exploded.
The Harkin amendment will take us most of the way back to the pre-surcharge days, costing jobs and hurting the bottom line of hundreds of thousands of small businesses in the process.
That’s why industry groups are campaigning against it. It’s why the moderate Brookings Institution opposes it. Even independent observers like CNN have pointed out the downside.
The amendment comes up for a vote later this week. With luck, logic will prevail.
