Westpac's $2 shop
Michelle Innis, Sydney Morning Herald, 14th of February 2006
With ATM transaction fees on the rise, Michelle Innis looks for ways to cut the costs.
One of Australia's big four banks has thumbed its nose at consumers and the Reserve Bank. Westpac last month announced it would charge $2 for every withdrawal customers make from a non-Westpac automated teller machine.
Judging by data pulled together by industry analyst Mike Ebstein of MWE Consulting, the $2 charge is likely to be a big earner for the bank.
"The point is that the volume of transactions at foreign ATMs represents about half of all ATM transactions," Ebstein says. A "foreign ATM" is one not owned by your bank.
Westpac has gone out on a limb to raise the charge. Although some other independent ATM providers charge more, the major banks all charge $1.50 for withdrawals at foreign ATMs.
A bank spokeswoman, Julia Quinn, says the fee increase reflects the costs involved when customers use someone else's ATM.
"We also want to encourage people to use our network," she says.
Members Equity, the bank owned by industry superannuation funds, charges $1 a transaction regardless of the ATM. Members Equity does not have a large ATM network and relies on other banks' machines.
"ATMs are enormously profitable," says Nick Coates of the Australian Consumers Association. "It costs the banks between 60 and 70 cents for those transactions to be processed. It is now costing consumers $2 or more."
MWE's Ebstein says that, surprisingly, there has been steady growth in the number of transactions conducted at foreign ATMs, despite the high cost.
"It might be the convenience factor," Ebstein says. "How far will you walk to get to your own bank's ATM? But people should also have woken up to the fact that they have to pay for that convenience.
"It's not a bad thing in itself because people want choice. And banks are not scaling back their own ATM networks but there are a lot of third-party providers coming in to the market."
The entry of third parties has given consumer groups and the Reserve Bank cause for thought. Non-bank providers include low-cost ATMs often positioned in newsagencies or petrol stations. These typically will not have their own network to link them to bank accounts but piggyback on a bank's network, paying that bank a fee.
The banks say the cost of running an ATM is deceptively high. They have to pay the cost of transporting the money to the ATM and the security guards needed to load the money into the machine. There might also be rent if the ATM is sitting inside a major shopping centre, and then there is maintenance and the network that links the machine to bank accounts.
A low-cost ATM might see a newsagency re-circulate money taken in the newsagent's business through the ATM. The newsagent is less exposed to risk because he or she has less cash in the till and more cash in a secure environment - that is, the ATM.
But the sticking point is interchange fees - or the fees that the banks charge each other to process transactions.
The Reserve Bank recently took a big stick to banks and credit card companies over the interchange fees they charge each other for credit card transactions.
Banks charge each other interchange fees when a customer withdraws money from a foreign ATM. So, if you have a Westpac transaction account but go to a Commonwealth Bank ATM to withdraw cash, the Commonwealth will charge Westpac an interchange fee to process that transaction.
A third-party provider without a bank network pays the interchange fees, plus a fee to piggyback on a bank's network.
An industry-based working party made up of the major banks and credit unions, but lacking any consumer input, has been looking at ATM fees. Interchange fees are set at about $1 a transaction. No one can be sure how much profit the banks make on these fees because the contracts between the banks are confidential.
The cost of security guards and other labour associated with ATMs has undoubtedly risen but technology costs have come down.
What is known is that consumers pay from $1.50 to more than $2 for those transactions.
So far, the industry has been unable to resolve the issue of high costs and what the Reserve Bank sees as the lack of a level playing field that would allow new entrants into the market, increasing competition.
"The working party, which involves the major banks, the credit unions and building societies, has been arguing about the nature of reform for too long," says Catherine Wolthuizen, the executive director of the Consumer Law Centre, Victoria.
"One member of that party is obviously not interested in bringing ATM fees down. Westpac has struck out and raised its fees on foreign ATMs."
Wolthuizen says some banks will charge consumers twice for transactions at certain ATMs. "If you use an ATM for a balance inquiry, and then use it to withdraw cash, you could be charged twice," she says.
"But there's no way you'll know that until you get your bank statement."
The banks say fees are so complex that it is impossible to tell a customer how much a transaction will cost at the ATM screen.
Some customers pay a flat fee each month and get unlimited withdrawals. Others pay no fees and get limited access to their money before fees kick-in.
If there is more than one cardholder with access to the account, then working out how many transactions have been made and the fees due becomes more complex.
Wolthuizen says: "Foreign ATM fees generally aren't captured in those 'all-you-can-eat' monthly account-keeping fees.
"There is no reason why you can't have real-time disclosure on how much it will cost to withdraw money from a machine."
Banks say customers can avoid paying high fees by using their own bank network, or using the Eftpos system to withdraw cash after making a purchase.
Members Equity's head of marketing, Tony Beck, says withdrawing cash when you buy your groceries is free for Members Equity customers. But using an ATM will cost $1 once you exceed your free transaction limit. Some banks also charge for Eftpos transactions. But all banks count the payment for goods followed by the withdrawal of cash as a single transaction.
So, if you have a limited number of transactions each month before fees kick in, combining those transactions will give you more bang for your buck.
"Everyone [has] an excuse as to why fees are high and why consumers pay them," says Andrew Willink, the managing director of research firm Cannex.
"Are consumers lazy? Are the banks profiteering? Someone should provide some direction on what's appropriate.
"There's got to be a wake-up call somewhere along the line."
How To Lower Fees
- Check whether you are entitled to a fee waiver. If you have enough business with the bank - loans or savings - you may be entitled to one. These include term deposits, cash management accounts, margin loans, mortgages and personal loans.
- Students and pensioners should also ask their bank what fee waivers may apply to them.
- Fee-free transactions usually include over-the-counter branch transactions, Eftpos, cheque, own bank ATMs, phone and internet banking and Bpay. There are usually limits. Check how the free transactions limits apply to you and what's counted.
- Package banking can increase the number of free transactions.
- If you don't qualify for concessions, try the low-cost accounts offered by ANZ or National Australia Bank. These give you unlimited transactions for a flat fee.
- Foreign ATMs are normally excluded from fee waivers - avoid using any ATM but those of your own bank.
- You can keep transactions low by withdrawing cash when using Eftpos.
- Check the Cannex table on the opposite page to see what is on offer.
