Saturday, September 15, 2007

Why BoA Really Raised ATM Fees

There has been much discussion in the media in recent days about the fact that Bank of America is increasing its fees to non-customers who use its ATM network from $2 to $3. Analysts say that one of the reasons for this increase is that banks now rely to a larger extent on fees, since the spread between the interest they pay on deposits and the interest they charge on loans is diminishing. Yeah, right. Banks really need a reason to increase fees.

A Bank of America spokesperson gave USA Today a different reason. Try not to laugh hysterically as you read this:

"...Betty Riess says the higher fees help offset the "significant investment" the bank has made to upgrade and expand its cash machines. The bank decided to charge non-customers a $3 fee at 10,700 ATMs — nearly two-thirds of its network — in bank branches and supermarkets as a way to "reduce wait time for our own customers," Riess says."

If the spokesperson's name was Pinocchio, we could have used her nose for a mast on an ocean going yacht.

Seriously, if you want to increase fees, do so, but don't try to feed us a line. I am a BoA customer, and I use the Bank's ATMs all over the country. I can remember very few times in which I actually had to wait in line to use the machines, and even when there was a line it was gone in about 20 seconds. If customer service was a true concern, BoA would hire more tellers so that I wouldn't have to wait in line for 15 minutes when I go into my local branch in the middle of the day. How gullible do they think we are?

Since that excuse didn't fly, BoA tries an even more ridiculous one: they would have us believe that they increased fees to off-set the cost of their investments in ATMs. Any moderately intelligent consumer sees right through this excuse. The return on the ATMs is immediate and dramatic and it comes in the form of fewer customers who need the assistance of a human bank employee. This means that BoA can employ fewer tellers, which translates into big savings come payday. And yes, the same long lines at the bank remain, because each remaining teller still needs to serve the same number of customers.

Here is what I think is the real reason for increasing the fees: BoA is increasing the fees because it thinks it can get away with it. I don't blame them. BoA is a for profit corporation that is there to make as much money as it can. If they thought they could charge us $27 to use a Kleenex, they would do so faster than you can say gesundheit...

I have another sneaking suspicion about the reason for the increase. Many independent banks that either have no ATMs of their own, or have only a small number of them, such as E*Trade and HSBC, have recently started offering to reimburse their customers for any ATM fees the customers incurr when using another bank's ATM network. This strategy essentially negates a major competitive advantage that the banks with large ATM networks have over their smaller rivals. Bank of America has the largest ATM network in the country, and has been aggressively leveraging this network as part of its customer acquisition strategy. Remember their commercials about "where can I find a BoA ATM?" I think that the increase in fees may not even be an effort to improve the bottom line, so much as it is an effort to prevent smaller banks from being able to cost-effectively lure customers by offering to reimburse them for ATM fees. I think that this may be part of a larger strategy to combat small rivals and online upstarts. Of course, the extra $1 per pop is certainly nothing to sneeze at. Gesundheit.


Armchair Fiduciary said...

I definitely try to beat the foreign ATM fee system. I have a small no fee account with UmbrellaBank that reimburses my foreign ATM fees. When I am out and kind find an ATM in my primary network (Wells Fargo) I use the Umbrella ATM card.
You can read more about my strategy here on my blog.

TFB said...


I think you are exactly right about why B of A raised their ATM fee for non-customers. Building a large branch and ATM network cost a lot of money. Protecting that competitive advantage is within their right. Increasing the cost of business for competitors is also fair game. They could've said "We spent a lot of money buying/leasing real estate and installing and maintaining ATM machines. Many branch-less banks have taken unfair advantage of our investment. We are raising our fee only to non-customers. Consumers are always welcome to open an account with us. " After all, nobody is forcing anyone to use B of A's ATMs. Too expensive? Don't use it.

Shadox said...

tfb, I completely agree with your comment. I am a marketing person, and that is exactly how I would have phrased the statement.

What I object to is not so much the fee increase, but the fact that BoA tried to sell it in the context of reducing lines for its ATMs. I don't take kindly to companies that insult my intelligence.