Friday, February 16, 2007

Flaherty Demands CEOs to Explain ATM Fees

Financial Post, Paul Vieira, 16 February 2006

Jim Flaherty, the Finance Minister, has asked for a "direct" answer from the CEOs of the country's biggest banks regarding their ATM fee regime. But the best consumers can hope for is that Mr. Flaherty's pressure will force the banks to roll back fees. That's because Ottawa does not regulate the day-today pricing of financial services products, a department spokesman said.

The Minister said as much yesterday, noting his goal in this process is to ensure "competition and choice" for Canadians.

Mr. Flaherty told MPs on the House of Commons finance committee he was unimpressed with an answer provided by the Canadian Bankers Association (CBA) about why the banks charge non-customers a fee to take money out of their ATMs. It is the second time in three weeks he has openly questioned the issue, and it is a sign Canadian banking practices are under increased scrutiny from Ottawa -- especially in light of a minority government and a potential spring election.

Last month, Mr. Flaherty said he was, at the behest of the NDP, seeking answers from the banking industry about ATM fees. In particular, he said he wanted to know why Canadians were forced to pay a fee of $1 to $2 for withdrawing cash from a machine owned by a bank at which the customer does not have an account. He noted banks in other countries, such as Britain and the United States, charge no such fee.

He received an answer from the CBA, but said it was unsatisfactory. As a result, he said he has contacted the chief executives at the chartered banks to seek a "direct" answer.

"The banking association said they would be continuing doing business as they do," Mr. Flaherty told reporters after the committee meeting. "I told the bank [CEOs] that I want them to have another look at it."

During his appearance before the all-party committee, he repeatedly noted that the country's credit unions have established a network whereby customers are not charged a fee for using an ATM from a rival lender.

Mr. Flaherty said the goal from this ATM fee exercise is to ensure Canadians benefit from "competition and choice" from the country's financial services sector. "I am pleased that --after looking into the issue -- that I have found there is substantial competition given the network that some of the credit unions have put together."

Mr. Flaherty's approach to the CEOs comes as the NDP-- which holds the balance of power in the current Parliament -- call on the banks to scrap their ATM fees.

It is estimated that Canadians pay out about $420-million a year for the privilege of using ATMs. That represents about 5% of the revenue of the biggest banks in Canada, which turned in record profits of more than $19-billion in 2006.

The banking industry has argued it has invested more than $30-billion in the past 10 years in technology that provides convenience to customers. Banks charge fees on ATM withdrawals to ensure its customers are not subsidizing the use of their machines by customers from another lender. (Bank customers who use their bank's machines face no withdrawal fee.)

Moreover, banks argue that it is up to the customer whether to use an ATM from another bank, and the machine gives the person the option of paying the convenience fee or cancelling the withdrawal.).
Financial Post, Duncan Mavin, 16 February 2007

New technology is transforming the bank machine into a financial vending machine, capable of dispensing everything from financial advice to movie tickets.

Banks in the United States have experimented with functions that enable ATM users to view stock quotes, purchase store gift certificates or postage stamps, and even pay parking fines.

Two U.S. banks are piloting more advanced ATM functions -- Wells Fargo customers in San Francisco can use their ATMs to make donations to five participating charities, while U.S. Bank account holders can top up their cellphone minutes via the ATM.

Much of what ATMs are dispensing beyond cash is still in the experimental stage, and additional functions in Canada are minimal. But, in fact, what holds back the use of ATM technology is not what can be done, but what customers want, experts say.

ATMs have been around for decades and usage continues to grow -- 81% of Canadian adults used an ATM at least once a month last year, up from 78% in 2005, according to a survey by market research firm TNS Canadian Facts.

Nine out of every 10 withdrawals are now made at a bank machine, and deposits of cheques and cash at ATMs outnumber in-branch deposits two to one.

But can other ATM functions really become as commonplace?

"Our view right now is that in spite of 30 years of living with ATMs, there's not a new killer application," said Alec Morley, vice-president of business transformation at Toronto-Dominion Bank.

"People want two things -- they want their money quickly and they want to check their balance and get an accurate statement."

In Canada, TD is one of the leaders in ATM technology, having overhauled its entire system at a cost of hundreds of millions of dollars.

"At the beginning of the ATM era, they ran off an IBM operating system, but we've upgraded that so they're now running on Windows XP, not unlike your home computer," Mr. Morley said.

"We can do an awful lot more with our ATMs than we could before. It's like we had a 1980s-era IBM desktop with a green screen, and suddenly 20 years later we've brought ATMs into the user-friendly Windows era."

"In theory, there's not a lot we can't do no w," Mr. Morley said. "The question is whether we want to, and more importantly, do our customers want it?"

Making the machines "stickier" with more functions will slow down users and that could make ATMs less convenient, not more so, Mr. Morley said.

There are also some questions about how far Canadian regulations will allow banks here to sell non-banking products -- they cannot sell insurance from their branches, but what about cellphone minutes or targeted gift certificates?

But ignoring the importance of a strong ATM network could be perilous -- ATMs are the third-most-important factor in a consumer's choice of financial institution in the United States, according to a report from California-based Javelin Strategy.

"Availability of financial services that consumers desire at the ATM can result in heightened customer satisfaction and loyalty, repeat transactions, expansion into additional products and new customer referrals," Javelin's Jean Garascia noted.

Still, although ATM innovation is limited in Canada compared with the United States, there are new developments on the way.

TD, for instance, is looking into following Wells Fargo's lead by allowing customers to make charity payments at the ATM, Mr. Morley said.

The bank's machines can already print out consolidated receipts to show customers all their financial data.

TD also operates machines in five languages with the capacity to add more, and its ATMs have audio capability for sight-impaired customers.

Streaming video, third-party advertising and ticket sales are also possible, though it's less likely we'll see those functions soon.

In particular, there are lots of "behind the scenes" improvements in ATM security and accessibility.

All of the new TD machines, for instance, have frontal wheelchair accessibility, and some have mirrors to help prevent "shoulder-surfing" -- people looking at another customer's personal information over their shoulder.

Banks in Canada and the United States are looking into technology that will enable customers to scan cheques at the ATM, doing away with envelopes and potentially speeding up cheque clearance times.

Perhaps more important for banks that want to make the most of their ATMs, the machines could become more interactive and more personalized, and capable of selling more of the banks' products, said Madhavi Mantha, a banking analyst at technology consultants Celent LLC in Montreal.

When an account-holder with a low balance withdraws some cash, for instance, the machine could be programmed to prompt that customer to ask for an overdraft.

Cheque book reordering, credit card applications and special offers could all become more prevalent, too, she said.

"Given the ubiquity of the ATM and its importance to consumers, banks that can leverage this channel to provide a greater number of products and services in a more creative way stand to transform the ATM from a cost of doing business to a competitive differentiator," Ms. Mantha said.