PAYING FOR ATM USAGE: GOOD FOR CONSUMERS, BAD FOR BANKS?

Authors


  • *The authors would like to thank Jean-Charles Rochet, Sujit Chakravorti, Ulises Juarez Garcia and an anonymous referee for helpful comments. We are also grateful to participants at EARIE 2008 and the conference on payment systems held in November 2008 at Norges Bank.

Abstract

We compare the effects on welfare of the three most common regimes for pricing shared ATM transactions: (i) free usage, (ii) foreign fees, and (iii) foreign fees and surcharges. Paradoxically, banks' profits decrease each time banks set an additional fee while consumers' welfare is higher when ATM usage is not free. Surcharging boosts ATM deployment and makes consumers better off if travel costs to reach cash are high. Our results are consistent with recent empirical works and also shed light on the Australian reform that consists in removing the interchange fee.

Ancillary