Article

Taking the fee-free plunge

U.S. FIs woo customers with no-cost ATM access.

October 16, 2006 by Tracy Kitten — Editor, AMC

*About the author: Ann All is the former editor of ATM Marketplace who continues to cover the financial self-service industry. To submit a comment about this article, please e-mail the editor,Tracy Kitten. 

Waiving ATM fees at out-of-network machines isn't an original strategy. It's long been favored by Internet banks and other institutions with limited numbers of ATMs.

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All those elements came into play for TD Banknorth, said Thomas Dyck, the bank�s executive vice president and director of marketing. The $40 billion bank in June introduced its No Fee ATM Card to checking accountholders in downstate New York, New Jersey, Pennsylvania and Connecticut, a market it entered with the purchase of Hudson United Capital earlier this year.

TD Banknorth rolled out the card after seven months of market research to determine the likes and dislikes of banking consumers in the area. ATM availability was near the top of the "likes" list, while paying ATM fees topped the "dislikes" list.

"When we compared our ATM presence to others already in the (mid-Atlantic) market, it was obvious we would fall short of customer expectations," Dyck said.

TD Banknorth owns about 240 ATMs in the Mid-Atlantic. Overall, its network includes 753 ATMs.

"The easiest way for us to overcome this was to make all ATMs free," he added. "So we essentially made the rest of the world's ATMs part of our network."

Thomas Dyck of TD Banknorth

TD Banknorth has issued 195,380 of the cards since June. Cardholders pay no foreign ATM fees for using non-TD Banknorth machines, and the bank refunds all fees charged by the owners of those foreign ATMs.

Unlike similar offers by TD Banknorth competitors, Dyck said, there are no special requirements.

"We didn't want to make our customers jump through hoops," he said.

A third of the banks that reimburse charges their customers pay at non-network ATMs impose a cap or limit the number of transactions, said Melissa Fox, an analyst with Dove Consulting, a division of Hitachi Consulting. Without such limits, the strategy "has the potential to be very expensive."

WaMu, the largest thrift in the United States with $324 billion in assets, however, says it's more concerned about customer convenience than cost. The FI already sees its ATM channel as a cost-center, not a profit generator. So in March, WaMu announced it wouldstop chargingcustomers who sign up for the WaMu Free Checking account a fee for using out-of-network ATMs.

Enrollment in the Free Checking program also includes perks like free checks for life.

According to Dove, the average foreign fee is $1.27, while the average surcharge tops out at$1.79. So banks like TD Banknorth can take a hit of more than $3 for every out-of-network transaction, and a bank�s financial return on its own ATMs may suffer if customers aren�t inspired to avoid fees, Fox said.

 

(Image provided by TD Banknorth)In June, TD Banknorth lintroduced its No Fee ATM Card to checking accountholders in new Jersey, Pennsylvania, Connetcticut, and parts of New York.

At TD Banknorth, Dyck says possible financial consequences will be "more than offset" by an anticipated reduction in the attrition rate of Hudson United Bank customers as well as an increase in new business. Though he didn't provide a number, he said TD Banknorth has seen a "significant" rise in new accounts since it introduced the offer.

PNC, a dominant player, with $92 billion in assets, in the mid-Atlantic footprint it shares with TD Banknorth, inSeptembermade universal free ATM access part of its benefits for customers with certain types of accounts, including those who maintain a monthly balance of $2,500 in their Free Checking accounts.

Though PNC has lots of ATMs, they are widely dispersed. So a fee-reimbursement strategy makes perfect sense for PNC � or any bank � entering a new market area, said Jerry Silva, research director for TowerGroup's Retail Banking and Delivery Channels practices.

"Competing on a local level is much different than competing on a national level. If you don't have a lot of ATMs in a given area, the quickest way to get up to speed is by reimbursing fees," Silva said. "It's an especially smart if, like PNC, you have the ability to tell what your customers are worth."