ATM fees: Debunking misconceptions

ATM fees can be a major point of contention for consumers. No one likes to pay for a service that they are used to receiving for free by using their bank's ATM. However, surcharge ATMs run by independent operators can still be a lucrative business.

For example, Paul Alex, a former police officer in San Francisco, made $12 million after starting an ATM side job in 2018. He was able to deploy 30 ATMs in the area by 2020, with a particular focus on liquor stores, barber shops and nail salons.

Although the vast majority of ATM transactions are surcharge free, independent ATM operators consist of about two thirds of ATMs in operation, Leland Englebardt, president of E-Squared Systems Inc., said in a video interview.

Although customers may not like fees, Englebardt points out that IADs deserve to be compensated as they don't have customers in the way banks do.

"They are serving someone else's customer," he said. The primary fee IADs charge is an access fee, but banks usually charge an out-of-network fee as well.

The average access fee is $3.15 while the bank's average fee is $1.58, according to a study by Bank Rate. Fees have increased quite significantly in recent years, which can influence a consumer's decision whether to use a surcharge ATM or not, especially considering the amount of money they are withdrawing.

"Access fees have reached a level where it matters if you're getting 40 or 50 dollars. Banks have been aggressive with getting their fees," Englebardt said.

With this in mind, what are the best environments for these surcharge ATMs, especially if customers generally try to avoid fees?

Englebardt said that, "Broadly speaking, an ATM does best in an environment where cash is the preferred means of transacting."

Some examples of these places include:

• Convenience stores where customers typically don't spend a lot.
• Bars where people like to pay or tip in cash.
• Pharmacies and five and dime stores.

They are typically useful in areas where customers are a captive audience, such as in airports, where customers are simply going to get some cash and dash.

When asked about how far customers are willing to go to avoid fees, Englebardt pointed out that the calculation is going to be different depending on the environment. For example, in Manhattan, a customer could likely walk a block down the road to go to their bank ATM, whereas someone in Kansas would need to drive a longer distance, and so might go with the surcharge ATM.

"It is very circumstantial," he said. "I'm in a hurry, I'm not gonna have the time or inclination to go out of my way. On the other hand, if I'm out on a Saturday and I'm not on a tight schedule, I'm willing to go out of my way."

However, IADs do not necessarily have to charge fees to make money. In some occasions, banks will place their branding on an IAD's ATM and compensate them on the back end. But another trend that is transforming the IAD industry is surcharge free ATM networks such as Allpoint.

The IAD earns money on a per transaction basis by joining Allpoint. Although they earn less per transaction, the volume makes up for the difference.

"The formula is on a per transaction basis, they are earning less than if they are surcharging, but because of uptick of volume, their ATM becomes a destination and the volume uptick more than compensates for the lower per transaction revenue," Englebardt said. "That's the formula for success. It's really good for IADs to have surcharge free networks."

IADs will continue to exist for the foreseeable future, and in many cases fees will be unavoidable for customers. As the case of the San Francisco police officer reveals, it's still a profitable business.