Mr. Chairman, my name is Linda Echard. I am the President and CEO of IBAA Bancard,
Arlington, VA, a subsidiary of the Independent Bankers Association of America. My
organization supports IBAA member banks with credit card, debit card and ATM services
through processing alliances. I would like to point out that IBAA is neither a network nor a user
of ATM networks. However, as a national trade association exclusively representing community
banks, ATM policies directly affect our member banks. In addition, IBAA Bancard offers a
portfolio of card services, including credit, debit, and a full complement of ATM services.
IBAA Bancard has an interest in the impact of Plus, Cirrus and regional ATM network policies
and their impact on the ability of community banks to offer competitive products and services.
The ability of community banks to offer such services expands consumer choices and builds
industry competition. As such, we remain in constant contact with IBAA member banks on
ATM issues. The IBAA appreciates this opportunity to testify before the Senate Banking
Committee on the subject of ATM surcharging.
Equitable access to the nation's ATM networks is of paramount importance to community banks
nationwide. The IBAA strongly supports an open market approach to ATM surcharging,
allowing these services to evolve into more efficient and improved functions, at a fair price to the
consumer and to the ATM owner. In today's marketplace, consumers decide what they are
willing to pay for increased conveniences and whether or not the price is reasonable. Therefore,
IBAA believes that market forces should dictate whether a fee should be imposed for the use of
an ATM, and how much that fee should be.
Essentially, we believe market forces should, and will, control the fees that banks charge for use
of their services. Congress should become involved only when the marketplace fails to operate.
At this time, there is no evidence that the market is not working. We, therefore, do not
believe that legislation directly affecting pricing of ATM services is necessary or desirable
due to several factors: first, options exist for consumers, second, price fixing would lead to
reduced convenience for consumers; and, third, price fixing would reduce or eliminate
It is important to note that some community bankers believe surcharging is a two-edged sword. While the additional fee income is helpful, potentially having community bank customers lured by large banks to move their accounts to a bank with a lot of ATMs is a significant threat to some community banks. Other community bankers believe that it is unfair for the ATM owner to receive two revenue streams from a transaction -- the surcharge and the interchange fee. These bankers support the option to impose an access fee on the condition that an ATM owner collect either an interchange fee or a surcharge on each transaction, but not both. Under this model, ATM owners would determine whether revenue from non-customers would be derived from its ATMs at branch locations and to collect access fees from ATMs that are more costly to operate, such as airports, theme parks, or other areas frequented by travelers. We have discussed this potential model with the owners of the Plus and Cirrus networks.
Although ATM surcharges have become more prevalent since Visa/PLUS and
MasterCard/Cirrus lifted their bans on ATM surcharges in April 1996, consumers are today not
mandated to use ATMs to access their money. ATMs provide one option for consumers to
access their deposit accounts. Deposit accounts have and will continue to provide various ways
for consumers to access their money. Consumers can still write a check at many places. Many
grocery stores allow consumers to write a check for groceries and receive cash back.
Consumers can also cash a check or purchase travelers checks during business hours at their
financial institution. Over the past three years, there has been a surge in the number of point-of-sale terminals that accept debit cards, allowing the consumer to directly purchase items without
the need for cash. At many of those terminals, merchants are willing to give cash back to the
consumer. Consumers generally have a free option to use the ATMs owned by their bank.
Finally, surcharge-free ATM alliances have increased the number of surcharge-free ATMs
available to many consumers.
Price Fixing Could Lead to Reduced Convenience
Over the past three years, since surcharging has become common throughout the United States, record numbers of ATMs have been installed. According to the Bank Network News, the number of ATMs has grown from 109,080 at the end of 1994 to 165,000 by the end of 1997. This growth includes over 38,000 ATMs at locations away from banks -- and where consumers want them. The rapid acceleration of ATM installations has been fueled by the revenue stream available with surcharging. In many of those locations, the ATM would not be economically justified if the consumer were not willing to pay an access fee (surcharge). Legislative change in the pricing options could cause many of those ATMs to lose money for the owners who would eventually close that location, thus inconveniencing the consumers that have become accustomed to the expanded convenience now available.
Price Fixing Will Reduce Innovation
ATMs were created to service bank customers 24 hours per day, with a full range of banking
services. While the primary transaction is cash withdrawal, these machines are capable of more
complex transactions resulting in even higher levels of consumer convenience. IBAA is
concerned that legislative price fixing will stifle innovation and inhibit creation of new services
that could further improve consumer satisfaction. Already we are seeing introduction of "non-cash" transactions that sell tickets, stamps and information. These transactions will expand as
consumers become familiar with the various capabilities of multiple-function ATMs.
We are concerned that the limitation of pricing options could have additional negative
implications as ATM or "electronic terminals" are considered in conjunction with electronic
commerce and Internet solutions that are rapidly evolving. The potential impact on electronic
commerce has not been studied by the IBAA, but we are concerned that S.885 could have far-reaching consequences in the yet unchartered waters of electronic commerce.
The IBAA surveyed its community bank members regarding ATM surcharges in July 1997, as an
update to an original survey completed in May 1996. These surveys showed that a significant
number of IBAA member banks have implemented surcharging, as also reported in the recent
General Accounting Office study of ATM surcharging. While community banks surcharge less
often, and their fees are generally lower, than large institution fees, surcharging has become an
important source of fee income for community banks which has been used to install new
machines at locations more convenient to consumers. The survey also showed that only 8.5
percent of the banks reported on-going complaints from consumers about surcharging.
One of the more important findings of the IBAA surcharge survey was the fact that 39 percent of our banks provide guidance to their customers on how to avoid ATM surcharges, and many community banks even absorb surcharges imposed on their own customers.
Market Place Is Working
As stated above, consumers have choices. ATMs are not a monopoly. In addition to insured
financial institutions, non-banks are now installing ATMs in record numbers. Consumers
continue to have multiple options for access to cash and/or their bank accounts. In most places,
the bank offices are open longer than they used to be. Consumers can write checks or use their
card to purchase goods and services and in some places even get cash back, and surcharge free
ATMs exist in many markets.
For these reasons, legislatively setting ATM pricing or banning ATM fees altogether , may well
lead to other more restrictive and competitively threatening strategies. IBAA therefore
respectfully urges Congress not to impose pricing limitations on ATM transactions.
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