Surcharge-Free Are ATMs Surviving, But Under Pressure
Credit unions under pressure to increase their noninterest income will continue to seek and offer surcharge-free ATM access but may tweak their programs to try to drive more income from them, according to industry executives.
Offering free ATM access to their members and the members of other networked credit unions has long been an institution for American credit unions. Participating in a large surcharge free network can allow small credit unions to compete with large banks with much more widespread ATM access. Further, surcharge-free ATM access also furthers credit unions' consumer-friendly reputation.
But in most cases, credit unions made the decision in favor of surcharge-free ATM during better economic times when interest income margins were considerably stronger than they are now. Now, with noninterest income simultaneously more important and under more pressure than before, will credit unions maintain their commitment to surcharge-free ATM access?
The consensus among credit union and ATM networks is that credit unions will probably remain committed to surcharge-free ATM access but may change the margins of the programs to try to eke more income out of them.
The executives pointed out that ATMs have never been seen solely or even primarily as income generators. Credit unions make money on their ATMs through the surcharges they charge cardholders from other institutions and on interchange they make from completing the transactions for other institutions. CU ATM programs lose money on the costs of deploying and maintaining the machines and on the interchange they pay to other ATM deployers that process their members' ATM transactions.
This business model has never made ATMs a very large part of most credit union noninterest income. In fact, a Callahan and Associates year-end survey of credit unions in 2009 found ATM income to be the fifth largest source of noninterest credit union income, behind overdraft fees, debit card interchange, credit card interchange and mortgage fees (closing fees and servicing fees).
"We haven't seen any upsurge in credit unions wanting to cut back or stop offering surcharge-free ATM access," said Ben Psillas, president of Allpoint Network, a surcharge-free network that is owned by Cardtronics, the largest independent ATM deployer in the country.
Allpoint has credit union and community banks as members and said both types of institution are still seeing surcharge-free ATM access as primarily a competitive necessity in the economic struggle against the largest banks.
"As long as the Bank of Americas and Wells Fargos keep running advertising campaigns touting their ATM access," Psillas said, "smaller institutions are going to look for ways they can match that message."
He also said an increasing number of financial institutions were looking at fee-free ATM access as a mollifying or soothing element if they should need to start charging fees for the use of their debit cards in the wake of the application of the Durbin amendment. The Durbin amendment will effectively cut the rate of debit card interchange to debit card issuers with greater than $10 billion in assets.
So far few, if any, credit unions have announced charging fees for their debit card transactions.
Stan Hollen, CEO of CO-OP Financial Services, agreed that few credit unions would abandon their commitment to surcharge-free credit union access, but he also said he would be surprised if more credit unions did take a look at raising the surcharges that they do make.
CO-OP Network participating credit unions agree to not surcharge ATM transactions from other CO-OP network participating institutions but still surcharge ATM transactions from nonparticipating deployers. The surcharge from those transactions, Hollen said, will likely rise.
"Bank of America is charging a $3.00 fee, and that is about the top of the market," Hollen noted. "But most credit unions are well below that, $1.00 or even 75 cents. You could see those increase significantly and still fall below Bank of America's fees."
Hollen also saw the issue in primarily competitive terms, making the point that widespread, largely surcharge-free ATM access is one of the key ways that the credit union industry can effectively compete with the very big bank chains.
But the CEO of a large credit union known for not charging any ATM fees at all said his credit union is maintaining the fee-free policy but will keep a weather eye out for trouble.
"We would say that if the situation gets difficult, too many losses or whatnot, that the ATM surcharges would be the first lever we would pull," said Jim Blaine, CEO of the $22 billion State Employees' Credit Union. SECU maintains a statewide ATM network under the Cashpoints brand and last year voluntarily gave up $67 million in income from ATM transactions for which it could have charged a fee.
"We regularly review [the ATM policy] and consider in light of other parts of the credit union's operations" Blaine said. "Of course, our examiners like to know that we are willing to start charging for ATM transactions."
Blaine attributed the ATM policy to a strong willingness to remain on the side of the consumers, judging that at even a $1.00 surcharge the CU would be taking money out of consumer's pockets that some of them couldn't afford.