ATMs: Fees and Functions

The Federal Reserve has reported that most banks are now assessing ATM fees or surcharges on nonbank customers. The larger the bank, the more likely it is to charge ATM fees to nonbank customers and the higher the average fee per transaction.

Moreover, about 80 percent of banks and savings institutions charged their depositors for withdrawing cash from their ATMs. In 2000, only six percent of these institutions levied such a fee on their depositors. The average fee charged in 2001 was $1.17.

While banks have been increasing their fees, they now offer more than just ready cash. As Michelle Higgs reports in the Wall Street Journal, ATMs now can also provide "stamps, long distance telephone minutes and even theater tickets." Newer ATMs allow customers to sign up for credit cards, overdraft protection and the stock market ticker. Fleet allows its customers to withdraw funds from their home equity loans through its 3,700 ATMs.

However, the market still works. Over the past decade, the number of ATMs has more than quadrupled to 322,000 nationwide. Given the increased number of machines and the higher fees for their use, it is not surprising that the number of transactions per machine has fallen by almost half just since 1997. A major response of the industry has been to increase the variety of services that the machines can provide. In this endeavor, bankers are hampered by the aging technology of the machines. Most existing machines run on International Business Machines using the OS/2 platform, which is no longer available to new customers. Most banks are now switching to the newer and more flexible Microsoft NT operating system. Bankers are hoping that the new services will offset the decline in usage that reflects the growing number of machines and higher user costs.