January 23, 2019

Banker’s Dilemma?

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Royal Bank of Scotland (RBS) has decided to stop some of its customers using cash machines (ATMs) owned by rivals. Now the only cash machines  these customers will be able to use are RBS’s own ones

Lloyds Bank has gone down the same route.  And now Nationwide director Mark Rennison has written to the deputy convener of the Scottish Parliament’s economy committee saying: “This could lead to a situation where all other banks and building societies are forced to take similar measures. …The interchange fee is paid by a bank or building society when a card issued by them is used in a different provider’s ATM. If a Nationwide customer uses an RBS ATM to withdraw cash or check their balance we will pay RBS a fee of between 20p and 30p for this service, to help cover costs such as installation, maintenance and servicing of that ATM, and vice versa if an RBS customer uses a Nationwide ATM we will receive the fee”. (Quote from BBC website)

But wait a minute! The costs of servicing each transaction at an ATM can be broken down into fixed costs and marginal costs. If you use an ATM for a transaction, would the “installation, maintenance and servicing” costs for that transaction be more likely to be fixed costs or marginal costs? And if everybody is paying rivals for their customers’ use of these rivals’ ATMs, what would happen to bank costs and revenues if everybody just went back to customers only using their own bank’s cash machines?  And whose problem would it be? Should anything be done – if so, who should do it?