Unjustified ATM charges

Following a series of serious glitches and minor fiascos ranging from automatic teller machines (ATM) going offline for days to serious misposting of balances where funds suddenly disappeared from one depositor and would be credited to another, banks with relatively outdated systems struggled to catch up with counterparts whose concepts of banking service and higher capital allowed them far better service and superior technology.

For bank clients with relatively more complex requirements than simply having an institutional strongbox within which they might keep their dormant funds, the ATM and the level of technology a bank invested in was critical.

Given the services available through ATM, for most of the average transactions that a bank client might need on a daily basis, the ATM was a virtual branch. From the perspective of a bank’s operating costs, the fact that an ATM needed less people to maintain shows its clear benefits. The interbank linkages it offered likewise provided depositors immeasurable conveniences that established the ATM as a mutually beneficial capital expenditure (CAPEX) investment.

As CAPEX, any investment in technology is capitalized and reflected in a profit and loss statement as depreciation. This affords the bank huge tax shelters where depreciation reduces taxable income yet does not entail cash outflows as do operating expenses.

On the balance sheet CAPEX is listed as an asset whose value is reduced over the life of the CAPEX. Relative to other CAPEX, the investments in ATM technology depreciation accelerates faster so the increase in bottom lines from ATM are likewise faster.

The bank’s bottom line is created when expenses are subtracted from revenues. In banks these revenues are earned from basically three sources — one, interest income from loans, two, fee-based income from fees charged for services rendered such as ATM fees, and three, from revenues from investments and trading gains like those earned by the bank’s treasury operations. Most of the revenues are earned from lending which uses the depositor’s money as a source of funds.

Because depositors provide the funding for loans these are recorded in the bank’s financial statements as deposit liabilities where the funds are in effect borrowed from the depositors. As interest to be paid by banks on the effective loanable funds sourced from depositors, banks compensate depositors with interest on their savings.

Without deposit liabilities, banks would have no funds to lend. The difference between the interest paid on deposit liabilities and the interest income from loans accrue to the bank from which they pay operating expenses including the direct costs attributable to operating ATM.

When a bank charges for ATM fees these fall under the attributable costs of operating these machines and the maintenance involved. Those fees should not include CAPEX upgrades or CAPEX expended to fix old, outdated glitch-ridden machines. It is not among the basic revenue streams of a bank.

Let’s do the arithmetic and put some numbers into this discussion if only to quantify the greed behind the proposal by some banks to increase ATM fees by as much as 525 percent.

The average cost of an ordinary ATM transaction to the bank is P8.50 to P10. Compare this with an over-the-counter (OTC) average cost of about P30 where the latter not only involves document queuing but also behind the counter verification, checks and balances accounting. These show why banks invest in ATM and would do best to reduce OTC transactions.

The accounting protocols involving ATM CAPEX and the nature of funds generally and typically transacted by depositors through the ATM show the relative cost impact of ATM over OTC where it is the bank that almost solely benefits from the depositor’s funds and from depositor’s ATM usage, initially from interest income from lending out depositors funds, and then from the operating cost savings resulting from depositors who use ATM.

“When a bank charges for ATM fees these fall under the attributable costs of operating these machines and the maintenance involved. Those fees should not include CAPEX upgrades.

“From the perspective of a bank’s operating costs, the fact that an ATM needed less people to maintain shows its clear benefits.