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To surcharge or not to surcharge: an empirical investigation of ATM pricing

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Abstract

This paper investigates depository institutions' decisions whether or not to impose surcharges (direct usage fees) on non-depositors who use their ATMs. In addition to documenting patterns of surcharging, we examine motives for surcharging, including both direct generation of fee revenue and the potential to attract deposit customers who wish to avoid incurring surcharges at an institution's ATMs. Consistent with expectations, we find that the probability of surcharging increases with both the institution's share of market ATMs and the time since surcharging was first allowed in the state, and decreases with the local ATM density. Further, we find evidence consistent with the use of surcharges to attract deposit customers who are new to the local banking market, but find no evidence that larger banks use surcharges as a means to attract existing customers away from smaller local competitors.

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  • Timothy H. Hannan & Elizabeth K. Kiser & James J. McAndrews & Robin A. Prager, 2001. "To surcharge or not to surcharge: an empirical investigation of ATM pricing," Finance and Economics Discussion Series 2001-38, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2001-38
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    1. Robin A. Prager & Timothy H. Hannan, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence From The Banking Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 433-452, December.
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    7. Calem, Paul S & Carlino, Gerald A, 1991. "The Concentration/Conduct Relationship in Bank Deposit Markets," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 268-276, May.
    8. James J. McAndrews, 1991. "The evolution of shared ATM networks," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-16.
    9. Robin Prager, 2001. "The Effects of ATM Surcharges on Small Banking Organizations," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(2), pages 161-173, March.
    10. Prager, Robin A & Hannan, Timothy H, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 433-452, December.
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    Keywords

    Automated tellers; Banks and banking - Service charges;

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