BOOSTING DEPOSIT ACTIVITY

As banks struggle to attract deposits, one popular strategy is to waive fees of out-of-network ATMs. While the strategy is not new, it is being given another look by many independent banks, as cost of funds has now made this strategy more attractive. In the past, some banks have tried limiting free access to the first 10 transactions per month, or reimbursing a portion of the fee, but many banks have found this too confusing to the customer and slowed adoption. Over the past 10 months, more banks have gone to completely free ATM services in an effort to capture the market's imagination. A completely free ATM network costs just slightly more than a 10 transaction limit, but gains the bank a huge marketing advantage by offering both "total freedom" and ease of understanding. For the bank, the cost is an average of $1.29 per transaction (while the average customer surcharge is double that at $2.50). The average customer that signs up for a surcharge free network tends to use out-of-area ATMs (this varies widely) an average of 6x per month. Customers that would normally be the domain of large national banks (because of the geographic coverage), can now be attracted by a surcharge-free ATM network. The additional cost to administer the program is not insignificant, but it allows the bank to market on a service-oriented characteristic that attracts a less interest rate sensitive customer. In other words, while the cost might be considered high, the type of service-interested customer tends to be more profitable for the bank. To compensate for this additional cost, independent banks have found that they must package this no-fee ATM network with a primary checking account, a minimum balance of $2,500, online banking and debit card. Banks have found that this "convenience" or "freedom" package produces profitability from a relationship standpoint. The package has a high retention rate (some 230x more than a checking account alone) and encourages larger deposit balances. In addition to appealing to existing customers, many banks have successfully used this package offensively when entering new markets. Because the dislike of ATM fees always ranks high in market research studies, incorporating a no-charge ATM network may be just what your bank needs to gain more deposit traction.