Saturday, November 24, 2012

What Do Big Banks Make on ATM and Debit Fees?

Most of us have some experience with how much the big banks charge us for ATM cash withdrawals and debit transactions. But it’s more difficult to find out what it actually costs the banks to provide these services.

The Financial Consumer Agency of Canada says the cost of withdrawing cash at your own bank’s ATM ranges from $0 to $1.50, and at another bank’s ATM it costs between $1 and $6. In my case, I get charged 60 cents for cash withdrawals at my own bank’s ATM, and the last time I had to use another bank’s ATM I was charged an extra $1.50 for a total of $2.10.

But what does it cost the banks to provide cash withdrawal at ATMs? A partial answer comes from Intrerac’s fees. They say “A single interchange rate of 75 cents per transaction applies to all Interac Cash transactions.” It’s not clear whether this is just for cash withdrawals between banks or for all ATM cash withdrawals. It’s also not clear to me who maintains ATMs and keeps them stocked with cash. Is this part of the service that costs 75 cents per cash withdrawal or is the maintenance and feeding of ATMs an extra cost?

Moving on to debit transactions, banks charge both customers and merchants. But the only information I have about the bank’s costs are another line from the same Interac page: “the Interac Association member fee charged to participating Members for the Interac Debit service is $0.007019 per transaction.” Less than a penny per transaction is definitely much less than the charges merchants see and the account withdrawal charges customers see.

I’m quite good at doing a sensible analysis when I can get useful numbers, but in this case I have more questions than answers about the basic data. If any readers can point me to useful sources of information, I’m interested.


  1. I would guess, to a bank, the marginal cost of a transaction would be infinitesimal, but the capital costs would be monumental.

    Reminds me of the costs of text messages. The infrastructure is expensive, but the cost of moving tiny bits of data is darn near free.

  2. @Gene: I agree. I was hoping to find some actual costs to objectively examine the widely-held belief that we're all paying more to banks than we should be. Too often people focus on marginal costs without factoring the needed return on invested capital.

  3. I work for a bank and I know there's a lot of work that people don't consider that goes into maintaining and building an ATM network. Not just the cost of installing it and filling it with cash, but electronic safeguards against fraud, physical safeguards against theft, monitoring, customer service issues, and so forth. Not saying the banks don't make a profit on it, but that it some respects they'd rather just everyone paid bills and did everything they could online, and got cash back from retailers instead of thru their own network they have to maintain.

  4. @Anonymous: You're right that there are many costs associated with keeping bank machines going. I'd really like to quantify these costs somehow, but the information seems difficult to find.