Federal Government Finance Minister Jim Flaherty was quoted recently as saying that the government would be investigating why Canadian banks charge fees to users of their automated teller machine devices (ATMs). While I applaud this move, there’s more to the story than meets the eye. Yes, Canada’s big banks are making record profits but are they making profits from ATM fees? I don’t think so.
There are about 20,000 ATMs in Canada of which less than half are owned by Canadian banks. A bank will charge you ATM fees only if you are a cardholder of another bank. Let’s estimate the revenue and cost profile of a typical Canadian bank with 1,000 ATMs which generate ATM fee revenues on 5 million transactions a year.
| Annual Statement of Income and Expenses | |
| Revenue: | |
| Interac Fees at $1.50 per transaction | $7,500,000.00 |
| Surcharges at $2.00 per transaction | 10000000 |
| Total Revenue | $17,500,000.00 |
| Expenses: | |
| Fees paid to Interac – estimated at $0.30 per transaction | $1,500,000.00 |
| Suppose the average bank machine costs $ 20,000. Let’s say we write off 20% for depreciation & interest on the purchase | 4000000 |
| The ATM must be loaded with as much as $120,000 in cash (which must be financed by deposits). This cash could have been used for lending purposes. Cost of cash (5% x 1,000 ATMs x $20,000 average float) | 1000000 |
| The ATM owner must pay for servicing the machine – cleaning the area; maintaining the device; and periodically changing the empty cash cassettes with full ones. Let’s say each machine is visited 200 times a year and it costs the ATM owner $40 per visit | 8000000 |
| The ATM must be connected via a data network to a host server system which performs transaction routing and processing with the cardholder’s bank deposit systems. The ATM owner must pay for these software services and for the costs of the network. Let’s assume this costs $150 per device per annum. | 1800000 |
| The ATM must be monitored on a 7 x 24 basis to ensure that it is fully functional and able to service cardholders. Let’s estimate this cost at $200 per device per annum. | 200000 |
| There would be other costs. For instance: the ATM owner may be required to pay rent for the space occupied by the ATM. Let’s estimate this at $1000 per device per annum. | 1000000 |
| Total Expenses | $17,500,000.00 |
| Net Income / Loss | $ Nil |
This case study does not take into consideration the costs of deposit envelopes or the payroll costs associated with opening these envelopes, or clearing and processing the deposited cash and cheques. Banks do not charge their customers for making ATM deposits.
The Canadian public receives fairly reliable service from the highly competitive ATM industry. Instead of imposing price controls on an industry that provides quality service and convenience for millions of Canadian consumers, the government should direct its attention to non-bank owners of ATMs. Do these companies ensure that the cash in their ATM’s is not counterfeit? Does the government confirm that ATMs of non-bank organizations are not stocked with illegal (laundered) money? I don’t think so.
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