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ATM Fees, Pricing and Consumer Behaviour: An Analysis of ATM Network Reform in Australia

Author

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  • Clare Noone

    (Reserve Bank of Australia)

Abstract

Automated teller machine (ATM) networks are a key component of payments systems. A number of competing theoretical models have been developed to examine fees associated with ATM transactions. A common feature of these models is that they imply that the elimination of interchange fees will cause a one-for-one increase in direct fees and a one-for-one fall in foreign fees, leaving the price of foreign ATM transactions unchanged in the short run. This prediction is not entirely consistent with recent experience in Australia. Following reform of the Australian ATM network in March 2009 that eliminated interchange fees, the total price of foreign ATM transactions was unchanged but the adjustment in foreign and direct fees was almost twice as large as the eliminated interchange fee. This paper addresses this discrepancy by developing a model of ATM fees that can explain this feature of the Australian experience and also explicitly models various ATM usage costs often ignored in the literature. However, this approach to modelling ATM fees, and the approach taken in the existing literature, cannot explain a striking feature of the Australian experience – the shift in consumer behaviour away from foreign ATM use – and two potential explanations for the observed behaviour are proposed.

Suggested Citation

  • Clare Noone, 2012. "ATM Fees, Pricing and Consumer Behaviour: An Analysis of ATM Network Reform in Australia," RBA Research Discussion Papers rdp2012-03, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2012-03
    as

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    File URL: https://www.rba.gov.au/publications/rdp/2012/pdf/rdp2012-03.pdf
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    References listed on IDEAS

    as
    1. Donze Jocelyn & Dubec Isabelle, 2011. "ATM Direct Charging Reform: the Effect of Independent Deployers on Welfare," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-23, June.
    2. Mcandrews James J., 2003. "Automated Teller Machine Network Pricing - A Review of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-13, June.
    3. Brendan Filipovski & Darren Flood, 2010. "Reform of the ATM System - One Year On," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 37-45, June.
    4. Nadia Massoud & Anthony Saunders & Barry Scholnick, 2006. "The Impact of ATM Surcharges on Large versus Small Banks: Is There a Switching Effect?," The Journal of Business, University of Chicago Press, vol. 79(4), pages 2099-2126, July.
    5. Donze, Jocelyn & Dubec, Isabelle, 2006. "The role of interchange fees in ATM networks," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 29-43, January.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Hugh Green, 2012. "The Treasury-Reserve Bank ATM Taskforce Report: Would it Pass a Cost-Benefit Analysis?," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 19(2), pages 63-68.

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    More about this item

    Keywords

    ATM fees; network pricing; circular city model; strategic behaviour;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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