Automated Teller Machines: Some Consumer Fees Have Increased
Published: 2013-04-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since the 1960s, consumers have increasingly used ATMs to easily access their accounts and conduct transactions such as cash withdrawals. Consumers may incur fees to use ATMs, such as a surcharge fee, which is paid to the ATM operator for transactions conducted at ATMs outside their financial institutions network. In 2008, GAO reported that ATM surcharge fees had increased since 2000. GAO was asked to review issues related to continued increases in these fees.
This report discusses (1) the business models for ATM operators and how they set ATM fees, (2) the amounts of fees that consumers incur to conduct ATM transactions and how these fees have changed over time, and (3) the reported costs of ATM operations for ATM operators and how the costs and revenues are expected to change.
For this work, GAO surveyed a nongeneralizable sample of 30 financial institutions and 4 independent ATM operators to collect information on their ATM operations and costs in calendar year 2011. In addition, GAO analyzed two types of ATM fees data obtained from firms specializing in the financial services industry: (1) data on fees charged by financial institutions from 2007 to 2012 that are generalizable to all financial institutions in the United States, and (2) nongeneralizable data on fees charged by independent ATM operators that were procured by mystery shoppers at 100 judgmentally selected independent ATMs in 2012. GAO also interviewed industry representatives and federal regulators to understand ATM operations and requirements.
section_title: What GAO Found
paragraphs: Automated teller machine (ATM) operators include financial institutions--banks and credit unions--as well as independent firms. Industry representatives GAO spoke with estimate there are approximately 420,000 ATMs in the United States. They estimate that financial institutions operate and set the fees for about half of the market, and independent operators work together with merchants to operate the remainder and to determine the fees incurred by consumers. ATM operators have differing business models that affect the way they set ATM fees for consumers. Financial institutions operate ATMs as a convenience to their own account holders, who generally do not pay fees to use these ATMs, while non-account-holding customers do. At independent ATMs, most consumers incur a surcharge fee, although there are some exceptions, such as when the ATM is part of a surcharge-free ATM network.
GAO estimates that the prevalence and amount of ATM surcharge fees charged by financial institutions have increased since 2007, and that the estimated average surcharge fee for financial institutions that charged a fee increased from $1.75 in 2007 to $2.10 in 2012, in 2012 dollars. In 2012, surcharge fees charged by financial institutions ranged from $0.45 to $5.00. GAO's analysis of a nongeneralizable sample of 100 ATMs run by independent operators found that the average surcharge fee was $2.24 and ranged from $1.50 to $3.00 in 2012. However, some independent ATMs may have surcharge fees that are higher or lower than those in GAO's sample. In contrast, GAO estimates that the foreign fee--the fee assessed by financial institutions for using an ATM outside the institution's network--generally stayed constant in dollar amount over this period. Consumers have many ways to obtain cash without incurring fees, such as using ATMs within their financial institution's network. Additionally, some financial institutions participate in surcharge-free networks that allow their customers free access to ATMs outside their institution's ATM network. These networks can greatly expand the number and location of ATMs available to consumers free of charge.
GAO's analysis of the ATM cost data reported by a nongeneralizable sample of financial institutions it surveyed revealed some differences in the biggest cost drivers for ATM operations. For example, large banks' reported costs for hardware and software investments were higher as a percentage of their reported total ATM costs than for the midsize banks and credit unions. Key cost drivers reported by the nongeneralizable sample of independent ATM operators varied, but commonly reported costs were rent, infrastructure, and transaction processing. In addition, most of the surveyed ATM operators reported that overall per-ATM costs have increased over the past 5 years, while per-ATM revenues have declined. Many of the operators GAO contacted believe that ATM operation costs will continue to rise in the future and that revenues will be flat or decline.

section_title: Letter
paragraphs: Since the 1960s, consumers have increasingly used automated teller  machines (ATM) to conveniently and quickly access their bank accounts  and conduct transactions, including withdrawing cash, making balance  inquiries, and depositing cash or checks. Consumers sometimes pay fees  for conducting ATM transactions, which can include both a fee paid to the  ATM operator (“surcharge” fee) and a fee paid to their own financial  institution (“foreign” fee) when they use an ATM outside that institution’s  ATM network. According to industry estimates, the ATM business has  grown substantially since the mid-1990s—from an estimated 165,000  ATMs in 1997 to 420,000 in 2012. In 2009, the most recent year for which  data on ATM transactions are available, U.S. consumers made an  estimated 6 billion withdrawals from ATMs, totaling $646.7 billion. We  have reported in the past that ATM surcharge fees increased between  2000 and 2006.
You asked us to review issues related to surcharge fees and what might  be driving any increases. This report discusses: (1) the business models  for ATM operators—financial institutions and independent firms—and how  they set ATM fees; (2) the amounts of fees that consumers incur to  conduct ATM transactions and how these fees have changed over time;  and (3) the reported costs of ATM operations for financial institutions and  independent ATM operators and how the costs and revenues are  expected to change.
To address these objectives, we reviewed prior GAO, regulatory, and  industry reports on ATM fees and operations, and we interviewed relevant  officials from the Board of Governors of the Federal Reserve System (the  Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the  Office of the Comptroller of the Currency (OCC), the National Credit  Union Administration (NCUA), and the Bureau of Consumer Financial  Protection, commonly known as CFPB. We also interviewed  representatives from several banks, a credit union, and three independent  ATM firms; industry associations; three electronic funds transfer (EFT)  networks; a financial institution that sponsors independent ATM  operators; and a consumer protection group.
For the first objective and third objective, we interviewed and surveyed  financial institution and independent ATM operators to collect information  on their business operations and models, transaction levels for calendar  year 2011, and what factors they take into account when setting fees. The  survey also collected information on costs—for calendar year 2011— across 12 categories that we developed in consultation with industry  representatives and staff from the Federal Reserve and CFPB. The  survey was deployed to the 10 largest banks and credit unions (by asset  size) and 10 randomly selected midsize banks (with assets between $10  billion and $50 billion). We received responses from 9 out of 10 large  banks, 8 out of 10 midsize banks, and 9 out of 10 credit unions. We  designed and deployed a separate survey to four independent ATM  operators that operate 10,000 or more ATMs and received responses  from two. We were not able to independently verify the cost information  submitted by survey respondents. However, we asked the respondents to  tell us what sources they used in calculating the costs they reported. They  relied on sources such as internal accounting reports and third-party bills.  Based on the source information provided and follow-up calls with survey  respondents, we determined the data they reported were sufficiently  reliable for our purposes. In addition to the survey, we interviewed one  large and two smaller independent ATM firms and held two group  interviews with representatives from nine community banks, in order to  obtain general information on their ATM costs and operations. None of  the costs or operations data we collected are generalizable to ATM  operators at-large. Due to the sensitive and possibly proprietary nature of  the information we collected with the survey, we aggregate the cost data  at a high level and present it in a way that prevents individual  organizations from being identified.
For the second objective, we analyzed data we purchased from two  market research firms that specialize in the financial services industry.  We obtained data on fees charged by banks and credit unions from 2007  through 2012 from Moebs $ervices, Inc. (Moebs). Moebs collected the  data through telephone surveys with financial institutions selected using a  stratified random probability sample, and therefore, when weighted, the  data are generalizable to all financial institutions in the United States. We  computed weighted estimates and 95 percent confidence intervals of the  percentage of institutions charging surcharge and foreign fees and  weighted averages and medians of these fees. We also examined the  differences between the estimated prevalence, or percentage of  institutions that charged each fee, and average fees for type and size of  financial institution, as well as geographic region and type of location of  the financial institution separately. We did not conduct a multivariate  analysis using all of these factors, control for all factors at once, or control  for additional factors in our analysis. We adjusted the dollar amounts of  fees for inflation to remove the effect of changes in prices. The inflation- adjusted estimates used a base year of 2012 and Consumer Price Index  calendar year values as the deflator. We relied on past interviews,  analysis of the Moebs data, and the methodology report provided by  Moebs, as well as reasonableness checks we conducted on the data we  received to identify any missing, erroneous, or outlying data. We  concluded that the data were sufficiently reliable for our purposes. Data  on ATM fees charged by independent operators are not available, so we  engaged the services of another research firm—Informa Research  Services—to conduct “mystery shops” at 100 judgmentally selected  independent ATMs in the top 10 metropolitan statistical areas. The  mystery shop process involved having a shopper go to each selected  ATM and use his or her own debit card to conduct a transaction and  document several aspects of the transaction, including the fee that he or  she incurred. Our sample of independent ATM operators focused on  ATMs in grocery stores, drug stores, gas stations, and liquor stores.  These data indicate what independent ATM fees were on a particular day  in 2012 at those 100 ATMs and are not generalizable to the population of  independent ATMs in the United States.
We conducted this performance audit from November 2011 to April 2013,  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. See appendix I for a more  detailed description of our scope and methodology.
subsections: section_title: Background
paragraphs: ATM transactions involve several different participants, including the  customer at the terminal (the “consumer”); financial institutions such as  banks, thrifts, and credit unions; and other entities involved in  electronically processing transactions. Financial institutions typically issue  debit cards to account holders that can be used for purchases at the point  of sale or to conduct ATM transactions. ATM owners can be depository  institutions, such as banks and credit unions, or public or private  companies, such as merchants or independent operators that specialize  in offering ATMs and related processing and support services.  Independent operators may own their ATMs as well as provide ATMs  under contract to merchants (for which the independent operators provide  processing and other support services). Some independently owned  ATMs are “branded” ATMs, where an independent firm owns and  operates the machine but a financial institution pays for the right to  display its logo on the terminal and to allow its customers to access the  machine free of charge. Independent ATM operators must have a  depository institution that sponsors their membership in the EFT networks  that process ATM transactions. Financial institutions have a relationship  with account holders outside of ATM transactions, while independent  ATM operators’ sole relationship with the consumer is through use of the  ATM.
The EFT networks provide the infrastructure that allows funds to be  transferred electronically and provide a means for an ATM card from one  financial institution to be used at another financial institution’s or  independent operator’s ATM. EFT networks route transactions between  the ATMs and the card-issuing financial institutions and act as a  clearinghouse to settle those transactions. They establish the rules and  requirements for any financial institution that chooses to participate in the  EFT network. These networks perform millions of transactions monthly.
The steps involved in an ATM transaction depend on whether or not a  consumer uses an ATM owned by his or her financial institution (typically  referred to as an “on-us” transaction) or an ATM owned by another  financial institution or firm (typically referred to as an “off-us” transaction).  On-us transactions are not routed through the EFT networks but instead  are processed internally by the consumer’s financial institution. In both  cases, the ATM transaction begins when the consumer inserts the ATM  or debit card into an ATM, enters the personal identification number,  selects the transaction to be performed—such as a cash withdrawal from  the consumer’s checking account—and enters the amount of the  transaction. For off-us transactions, the terminal sends this information to  the sponsoring financial institution to identify the card-issuing financial  institution, which determines the EFT network used to route the  transaction. The EFT network passes the request for authorization to the  consumer’s financial institution, which approves or denies the transaction  based on the terms and conditions of the consumer’s account and the  availability of funds. The approval or denial message is sent back to the  ATM terminal, first through the EFT network and then through the  sponsoring bank. If the transaction is authorized, the consumer receives  the requested cash, and the transaction is posted to the consumer’s  account, deducting the amount of money the consumer received at the  ATM plus any fees assessed. Using the EFT network, the consumer’s  financial institution pays the ATM owner the withdrawal amount plus any  assessed surcharges. Figure 1 depicts the transaction flow among the  parties involved in an off-us ATM transaction.
Several fees can be paid by the consumer and the other participants in  order to process an ATM transaction. Consumers may be charged two  types of fees. First, the ATM owner may assess a surcharge fee on the  consumer for conducting a transaction at the ATM. Federal regulations  require ATM operators to provide notice that the surcharge fee will be  imposed and disclose the amount of the fee on the ATM screen before  the consumer commits to paying the fee. Surcharge fees also appear on  the transaction receipt and again on the consumer’s account statement— sometimes combined with the cash withdrawal amount. Second, a foreign  ATM fee is a fee that may be assessed by the consumer’s financial  institution when the consumer uses an ATM owned by another ATM  operator. The foreign ATM fee is not disclosed at the ATM. Rather it is  provided to consumers in information they receive when they open their  account, in fee disclosures, and on their periodic statements when they  incur the fee.
The consumer’s financial institution and the ATM operator also pay  certain fees to process an ATM transaction. Specifically, the interchange  fee is set by the EFT networks and paid by the consumer’s financial  institution to the ATM owner for the costs of placing and maintaining  ATMs. The switch fee is assessed by the EFT networks on the  consumer’s financial institution to pay for processing each of its network  transactions. Finally, the acquiring fee is paid by the ATM owner to the  EFT networks for use of the networks to conduct the ATM transaction.  Table 1 provides a summary of the fees paid by consumers, financial  institutions, and ATM operators during an ATM transaction.
section_title: Business Models for Financial Institutions and Independent ATM Operators Impact How Fees Are Set
paragraphs: Financial institutions and independent ATM operators have different  business models and, as a result, set ATM surcharge fees differently.  Financial institutions operate ATMs as a convenience to their own  account holders, who generally do not pay fees to use these ATMs.  However, financial institutions do assess a surcharge fee when a  transaction is conducted by nonaccount-holding consumers. Independent  ATM operators charge surcharge fees to most customers, and in many  cases operators work with merchants to determine those fees.
subsections: section_title: Financial Institutions Operate ATMs Primarily for Their Own Account Holders, Often with No Fees
paragraphs: According to industry estimates, there are approximately 420,000 ATMs  currently operating in the United States, and financial institutions operate  just under half of those machines, either in their own facilities or at off-site  locations, such as shopping centers, drug stores, and grocery stores.  Those financial institutions that responded to our survey—representing  81,833 ATMs—reported they placed 57 percent of their total ATM fleet at  bank facilities, while 43 percent were located off site. Financial  institutions typically own or operate their ATMs. In some cases, financial  institutions partner with independent firms to operate branded ATMs that  carry the financial institution’s logo and look and function as if they belong  to the institution but are owned by an independent ATM operator. As  previously discussed, under these arrangements, the account holders for  that financial institution are allowed to use the branded ATMs without  paying a fee.
Financial institution representatives told us they view access to ATMs as  a key service they provide to account holders. A representative from a  large national bank said that its personal banking business is driven by  customer convenience. Therefore they view access to ATMs as an  important service to their account holders and have invested in a large  fleet of ATMs for customer use. Likewise, a community banker we  interviewed said that they view their ATMs as a way of extending the  bank’s hours for customers to receive cash and make deposits.  Representatives from two large national banks said that they consider  where their customer base is located when determining where to place an  ATM. One large bank representative noted that the bulk of the bank’s  ATM business is its own customers, so it invests in ATMs and places  them in locations near the greatest numbers of account holders. Financial  institutions that have smaller fleets of ATMs, such as some credit unions  and community banks, may offer their account holders access to ATMs  by participating in a surcharge-free network. When a financial institution  enrolls in a surcharge-free network, all ATMs in that network are available  to their account holders surcharge free.
Financial institutions generally do not charge their own account holders  for transactions conducted within their own ATM network. When  establishing surcharge fees charged to nonaccount-holding customers,  the financial institutions we surveyed most frequently cited three factors  that they consider, the first being competition—the fees being charged by  nearby ATMs. Likewise, one bank representative we interviewed said  that they do not want the fee to be so high that they turn away potential  customers; instead, they want account holders from other financial  institutions to use their ATMs and based on that experience, open  accounts at their bank. Similarly, one of the community bankers we spoke  to said that they try to set their fee just below those of other ATMs in the  area so that they can increase their own transaction volume. In contrast,  a few industry representatives told us that generally fees are set higher at  areas where there is more limited ATM competition, such as airports and  amusement parks.
The second most cited factor by survey respondents that they consider  when setting surcharge fees was cost of operating the ATM. However,  several of the financial institution officials we interviewed noted that the  surcharge fees do not cover the costs of operating their ATMs, and the  institution takes a loss on the ATM to provide the service to its account  holders. The third most frequently cited factor the surveyed financial  institutions take into account when setting surcharge fees was anticipated  usage, or transaction levels. For example, representatives from two  large banks noted that surcharge fees help ensure ATM availability for  their account holders while also making the service available as a  convenience for nonaccount-holding customers. Furthermore, the  surcharge revenues at some locations can subsidize expensive or  unprofitable ATM locations such as airports, colleges, and business  districts.
section_title: Independent ATM Operators Work with Merchants to Operate Terminals and Set Fees
paragraphs: Independent ATM firms—those not part of a financial institution—own,  operate, or service just over half of the nation’s ATMs in a variety of  locations, such as gas stations and convenience stores, bars,  restaurants, and small businesses, according to industry sources. The  independent ATM industry is very diverse, with firms ranging in size from  fewer than five ATMs to tens of thousands. According to information we  have gathered, the two largest independent firms operate an estimated  47 percent of the independent ATM market. In addition to owning and  operating their own ATMs, these independent firms offer a wide range of  ATM-related services to merchants and other entities that own ATMs,  such as monitoring and maintaining appropriate cash levels in terminals  and processing transactions. There are four primary business models for  independent ATM operators, shown in table 2.
According to the ATM Industry Association, approximately 20 percent of  the independent ATMs in the United States are owned by an independent  ATM firm. The other 80 percent of independent ATMs are owned by  merchants and retailers. In these situations, independent ATM firms  provide varying levels of nonownership services and support to  merchants, depending on the business model established. We found that  the independent ATM firms included in our study had similarly diversified  portfolios, where they both owned and operated ATMs while also  providing services to merchants who owned the ATMs in their stores. We  also found that, among the firms in our study, there was great variability  as to the percentage of ATMs owned by the firm versus the merchant. For  example, one smaller independent firm we spoke with owned 79 percent  of the approximately 500 ATMs in its fleet, while the remaining 21 percent  were merchant owned. In contrast, the two independent firms that  participated in our survey—representing approximately 66,000 ATMs— owned 2 percent of their ATMs, while merchants owned the other 98  percent.
Independent ATM operators generally levy a surcharge on consumers,  although there are exceptions. Unlike financial institutions, which have a  relationship with consumers who are also account holders through which  they can gain revenue from other account fees, independent ATM  operators’ only relationship with the consumer is through their use of the  ATM. Most independent ATM operators charge a surcharge fee to  consumers for the convenience of accessing their account from a  machine outside their bank’s ATM network. In addition, as previously  discussed, those consumers may be charged a foreign fee by their own  bank for using these independent ATMs (or ATMs run by financial  institutions other than their own). However, some transactions at  independent ATMs are surcharge free because the ATMs may be bank- branded or may be part of one or more surcharge-free networks.
When placing, operating, and servicing ATMs in retail space, independent  ATM firms establish contracts with the merchants that specify which party  will set the surcharge fee and how, if at all, those and other fee revenues  will be shared. For turnkey and merchant-assisted ATMs, the surcharge  fees are generally set by the independent ATM firms because they own  the machines. For ATMs that are owned by merchants or retailers in the  United States, the fees are set by either the merchant or a combination of  the merchant and the independent ATM firm. A representative from one  independent firm said that if the ATM is owned by the merchant, the firm  is not involved in setting the surcharge fee, except to make suggestions  to the merchant or to refuse to process the transaction if it determines the  fee is exorbitant.
Like financial institutions, when setting surcharge fees, independent  operators typically consider fees at the nearby ATMs, the location, and  operating costs. A representative from one independent ATM firm said  that the market dictates the surcharge fee and he can only charge what  his competitors are charging. The location of the ATM is also considered  when setting the surcharge fee. Another independent operator said he  considers the type of location where the ATM will be placed and the  resulting demographic that will frequent that area. He evaluates what fee  is competitive for the region or neighborhood and the type of location. For  example, some ATMs have lower fees because they are placed in lower  income areas. Another firm representative said that the surcharge fee in  bars, nightclubs, and casinos is typically higher than the surcharge fee in  a grocery store. The third factor is the cost of running the ATM terminal.  An independent ATM operator we spoke with said that the firm  establishes fees that, when combined with other revenues such as  interchange fees, will provide sufficient revenue to cover the variable cost  of processing transactions and the fixed cost of installing the ATM.
section_title: Some ATM Fees Have Increased, but Often Consumers Can Avoid Incurring Fees
paragraphs: Our review found that since 2007, surcharge fees assessed by financial  institutions have generally increased. We also found that the percentage  of financial institutions charging foreign fees and the amount ATM users  pay in foreign fees has remained constant. However, consumers can  obtain cash without paying ATM fees in a number of ways, such as using  their own banks’ ATMs or requesting cash back at the point of sale.
subsections: section_title: ATM Surcharge Fees Assessed by Financial Institutions Have Increased, While Foreign Fees Remained Constant
paragraphs: Our analysis shows that the prevalence and amount of ATM surcharge  fees levied by financial institutions have generally increased since 2007,  while foreign fees have generally remained constant in prevalence and  amount, as seen in figure 2. We analyzed data obtained from a private  vendor—based on annual surveys of hundreds of banks, thrifts, and  credit unions on selected banking fees—and found that the percentage of  financial institutions charging surcharge fees rose from an estimated 87  percent to 96 percent from 2007 through 2012. Of those institutions that  charged a surcharge fee, the estimated average ATM surcharge fee  increased from $1.75 in 2007 to $2.10 in 2012. The estimated median  ATM surcharge fee rose from $1.56 in 2007 to $2.00 in 2012. Surcharge  fees charged by financial institutions in our sample ranged from $0.28 to  $5.52 in 2007, and the range was $0.45 to $5.00 in 2012. Meanwhile,  foreign fees did not significantly change in prevalence and amount from  2007 to 2012. Our analysis of the data shows that the estimated  percentage of financial institutions charging their customers a foreign fee  between 2007 and 2012 has remained fairly constant at about 55 percent.  In addition, our analysis shows that for institutions that charge a foreign  fee, the estimated average fee did not significantly change between 2007  ($1.36) and 2012 ($1.42). The estimated median foreign fee was $1.09 in  2007 and $1.00 in 2012. Foreign fees charged by financial institutions in  the sample ranged from $0.28 to $5.52 in 2007, and the range was $0.25  to $5.00 in 2012.
We estimate that there were no statistically significant differences in 2012  in the prevalence of the surcharge fee based on the type and size of  institution, or on geographic region or location—such as rural, urban, or  suburban—in which the financial institution was located. The estimated  average surcharge fee amount, for institutions that charged a fee, differed  slightly by size and type of financial institution. In 2012, the estimated  average surcharge fee for larger financial institutions was approximately  $0.24 higher than the estimated average surcharge fee for smaller  financial institutions, and banks’ estimated average surcharge fees were  also $0.17 higher than the estimated average surcharge fees charged by  credit unions. For example, in 2012, the estimated average surcharge  fee for using a large financial institution’s ATM was $2.25, while the  estimated average surcharge fee at a small financial institution’s ATM  was $2.01. In contrast, there were no statistically significant differences in  estimated average ATM fees in 2012 based on the type of location and  geographic region in which the financial institution was located. See  figure 3 for information on the estimated average surcharge fee amount  based on several factors for 2012.
We estimate that a higher percentage of large financial institutions  charged a foreign fee in 2012 than small financial institutions. Specifically,  an estimated 73 percent of large financial institutions charged a foreign  fee in 2012 compared to an estimated 50 percent of small financial  institutions. For those institutions charging the foreign fee, the estimated  average fee amount was greater for large institutions and for banks. In  2012, large financial institutions had an estimated average foreign fee of  $1.62, which is $0.26 more than the estimated average foreign fee  charged by small financial institutions, which had an estimated average  foreign fee of $1.36. Additionally, the average foreign fee was an  estimated $0.23 higher at banks than credit unions in 2012. See figure 4  for more information on the estimated average amount of foreign ATM  fees based on various factors for 2012.
Historical or trend data for independent ATM operators’ fees are not  available. However, we analyzed data from Informa Research Services  on the fees charged by a judgmentally selected sample of 100 ATMs run  by independent ATM operators in 2012. These data are not  generalizable to the independent ATM population at-large. Our analysis  of the Informa data shows that the average surcharge fee for the 100  independent ATMs surveyed was $2.24 in 2012. The median surcharge  fee for independent ATMs included in the sample was $2.00. The  surcharge fee ranged from $1.50 to $3.00. However, some independent  ATMs may have surcharge fees that are higher or lower than those in our  sample. While we do not have historical data on independent ATM  surcharges, representatives from a large independent ATM firm told us  that their average surcharge fees rose from $1.77 in 2002 to $2.46 in  2011.
Aggregate data are also not available on the prevalence of surcharge  fees among independent ATM operators. However, data obtained by  mystery shoppers from a sample of 100 judgmentally selected  independent ATMs in the top 10 metropolitan statistical areas, show that  most of these ATMs charged a surcharge fee to the mystery shopper, but  some transactions were conducted surcharge free. Specifically, in our  sample of 100 independent ATMs, six mystery shoppers conducted a  transaction for free using the selected ATM. In four of the six cases, the  shoppers were able to conduct a transaction surcharge free since both  the ATM and the shopper’s debit card displayed the logo of a surcharge- free network. In the other two cases where no surcharge was incurred,  we sent a second mystery shopper to use the terminal, and the second  shopper was charged a fee. We were unable to determine why the first  mystery shoppers were not charged surcharge fees, but we did note that  the ATMs had surcharge-free network logos on them.
The independent ATM firms we surveyed reported similar results to the  mystery shopping data. The two independent firms reported in our survey  that out of 140,634,638 cash withdrawals at their ATMs in calendar year  2011, customers incurred a surcharge fee 97 percent of the time.  However, the percentage of transactions that are surcharge free may vary  depending on the extent to which the ATM operator is involved in  surcharge-free networks or branding agreements. For example, one large  independent ATM operator estimates that more than half of the  transactions that occur on its ATMs do not generate a surcharge fee due  to either a surcharge-free network or branding agreements.
section_title: Consumers Have Many Ways to Obtain Cash without Incurring Fees
paragraphs: To obtain cash without incurring fees, consumers can generally withdraw  cash at a bank branch during banking hours or use ATMs in their bank’s  network. Our analysis indicates that a majority of transactions at financial  institution ATMs may occur in this way. Specifically, according to our  survey data, approximately 92 percent of the 3.3 billion reported  transactions in calendar year 2011 at the financial institutions that  responded did not incur a surcharge fee. At midsize and large banks we  surveyed, ATM cash withdrawals did not incur a surcharge fee about 85  percent of the time. Additionally, our survey results showed that cash  withdrawals at credit unions were surcharge free 95 percent of the time.  Further, some industry representatives told us that financial institutions’  ATMs typically have a higher volume of transactions than independent  ATMs. While our survey results are not generalizable to the total  population of ATM operators, they did reveal that per-ATM transaction  levels were much higher at financial institution ATMs than at independent  ATMs for operators responding to the survey. As previously discussed,  bank representatives we spoke to said that transactions at their ATMs are  primarily from their own account holders, who do not incur fees for the  transaction, and a large EFT network estimated that 80 percent of ATM  transactions are on-us transactions and do not incur a fee. Consumers  also avoid paying foreign fees in on-us transactions, because they are  using machines within their financial institution’s ATM network.  However, all consumers may not have convenient access to their own  financial institution’s ATMs to obtain cash. Some account holders may  live in areas with limited access to a financial institution facility, or need  cash at a time when they are unable to go to their own financial  institution—for example when attending a sporting event or while  travelling.
Additionally, some financial institutions participate in surcharge-free  networks that allow their customers free access to ATMs outside their  bank’s network of ATMs. In this way, a financial institution can expand the  number and location of ATMs available to its customers. Three of the  largest surcharge-free networks in the United States each offered more  than 20,000 ATMs, and some customers whose financial institutions have  enrolled in those networks can use those ATMs without incurring a  surcharge fee. Four banks and eight credit unions in our survey reported  that they participated in at least one surcharge-free network, expanding  the number of surcharge-free ATMs available to their customers. For  example, one credit union in the survey owned and operated 251 ATMs  and enrolled in a surcharge-free network that gave its customers access  to an additional 30,000 ATMs free of charge. However, ATMs in  surcharge-free networks may not be available to all customers. One of  the largest surcharge-free networks in the country states that 80 percent  of the ATMs in its network are in metropolitan areas.
Also, many financial institutions use branding agreements to expand their  network of ATMs, which allows their consumers to withdraw funds from  these ATMs without incurring fees. For example, the number of branded  ATMs with financial institution logos increased from 11,900 in 2010 to  15,400 in 2011 for one large independent ATM operator, according to the  operator’s annual reports. Among our surveyed financial institutions,  branded ATMs accounted for approximately 16 percent of the total  number of reported ATMs. One small independent ATM operator  estimated that 55 percent of customers who use its ATMs pay a fee, and  that percentage has decreased over the past 5 years due to an increase  in financial institution branding and access to surcharge-free networks.
Some financial institutions offer to refund ATM fees to account holders  when they use an ATM. One community banker we spoke to said the  bank gives consumers rebates on ATM fees up to $20 each month and  that this approach is more cost effective than owning and maintaining a  fleet of ATMs. Finally, industry participants we spoke with said that  consumers are increasingly obtaining cash when making debit card  purchases, which also allows them to avoid fees. One community banker  we spoke to said that the bank educates customers and encourages them  to obtain cash at the point of sale so that they do not incur ATM fees and  the bank can have a smaller ATM fleet. However, as previously  discussed, these options may not be available to all consumers, and we  do not know the extent to which consumers obtain cash at the point of  sale or receive ATM fee refunds.
section_title: ATM Operators Have Varying Costs, and Many Operators Anticipate Costs Will Rise
paragraphs: ATM operators incur a variety of costs—including rent to place the  machines in retail locations and security costs to keep the machines safe,  among others—and the amount of these costs varies widely among  operators. ATM operators report taking a number of steps to respond to  changing operating costs, such as increasing surcharge fees and  investing less money in ATMs. However, operators also anticipate that  many of these costs will rise in the future.
subsections: section_title: Financial Institution and Independent ATM Operators Have a Variety of Disparate Costs
paragraphs: ATM operators incur a wide variety of costs in providing ATM services.  Our survey of a judgmental sample of the 10 largest banks and credit  unions, 10 randomly selected midsize banks (“financial institution”  operators), and 4 large independent ATM firms (“independent” operators)  collected information on the following cost categories, all of which— except bank sponsorship—are typically borne by both financial institution  and independent ATM operators.
Rent. Financial institution operators pay rent for ATM facilities at  locations not in an institution facility, and independent operators pay  rent for retail or other locations, such as grocery stores or gas  stations.
Hardware and software investments. Operators purchase, install, and  upgrade ATM software and equipment, including the ATM terminals  and physical security equipment, such as bolting devices which  secure the machines to walls or the floor.
Cash services. Operators must take steps to ensure that ATMs are  adequately stocked with cash and, therefore, spend time and  resources monitoring transaction levels in order to accurately forecast  future cash needs. Cash is delivered to the ATM via armored carrier.  Independent operators also need to pay to access a supply of cash  from a bank vault.
Maintenance and repairs. Maintenance includes cleaning the  machinery, making routine repairs, and restocking of supplies (such  as receipt paper), as well as more significant repairs, which can incur  higher costs for tools, parts, and labor.
Physical security and insurance. Physical security costs are those  incurred to keep the ATM and the surrounding lobby or area safe and  include items such as lighting and cameras. Insurance costs include  those policies that cover the cash in the machines.
Infrastructure and processing. Operators need to install and maintain  the telecommunications infrastructure necessary for ATM operations  and transaction processing. Processing costs include fees associated  with transaction processing (switch fees) and costs associated with  interbank settlement and account posting.
Network fees. ATM operators pay membership or license fees to the  EFT networks in order to route transactions on the networks.  Network fees also include any fees the ATM operator pays for  membership in one or more surcharge-free networks.
Taxes and licenses. In addition to property and sales taxes, ATM  operators are sometimes required to pay for state and local licenses,  on either a one-time or recurring basis.
Regulatory and compliance costs. Regulatory and compliance costs  include paying for the required ATM signage alerting customers to any  fees, as well as the costs of regulatory inspections and reviews.
Fraud prevention and fraud losses. Fraud prevention costs are those  related to activities aimed at detecting and preventing ATM fraud.  Fraud losses are those incurred by the ATM operator when fraud  occurs, including cash theft and ATM robberies.
Bank sponsorship. Bank sponsorship is a cost borne only by  independent ATM operators, which, as previously discussed, must  have a financial institution that sponsors their membership in the EFT  networks.
section_title: Key Operating Costs Varied across Different ATM Operators
paragraphs: ATM operators we surveyed and spoke with indicated that key drivers of  operating costs varied. For example, in our survey, large banks reported  much higher costs for some categories, as a percentage of total costs,  than did midsize banks and credit unions. Likewise, in some cost  categories there was a wide range of reported per-ATM costs, while in  other categories, the per-ATM costs were fairly consistent. None of the  data we collected on costs are generalizable to either the financial  institution or independent ATM operator populations at-large, although  some costs, such as hardware and software investments, were  mentioned as key drivers by many of the operators included in our work.
Our analysis of the data collected from a sample of 30 institutions from  three financial institution types—large bank, medium bank, and credit  union—revealed some key differences in the biggest cost drivers for  these ATM operators. The large banks’ costs for hardware and software  investments were much higher as a percentage of their total costs than  for midsize banks and credit unions in our survey. As shown in figure 5,  the majority (63 percent) of the larger banks’ costs were for hardware and  software investments and upgrades. The second most prominent cost for  the large banks was rent (15 percent of overall costs), followed by  maintenance and repair (9 percent of overall costs) and cash services (6  percent of overall costs). In contrast, the hardware and software  investments were a much smaller percentage of reported total costs for  the midsize banks (18 percent) and credit unions (23 percent) in our  survey. In addition, midsize banks and credit unions that participated in  our survey had much more even proportions of spending across the  various cost categories. Midsize banks and credit unions also reported  that a greater percentage of total costs were dedicated to infrastructure  and processing (17 and 23 percent respectively), compared to the large  banks (2 percent).
In some cost categories institutions reported a wide range of per-ATM  costs across the three financial institution types, while in other categories,  the per-ATM costs were fairly consistent. For example, the financial  institutions we surveyed reported that per-ATM costs in calendar year  2011 for rent and hardware and software were much higher for the large  banks than for the credit unions and midsize banks. The average rent  cost, on a per-ATM basis, was $27,173 for large banks, $4,935 for  midsize banks, and $4,032 for credit unions. We saw similar results for  hardware and software investments, with large banks reporting, on  average, $28,607 in costs per ATM, while midsize banks’ and credit  unions’ average costs were, respectively, $3,642 and $7,422. These  hardware and software costs include both capitalized and noncapitalized  items, although not all institutions reported noncapitalized costs. In  contrast, the costs for maintenance and repairs were much closer in  range for the three financial institution types. The average maintenance  and repair cost, on a per-ATM basis, was $5,444 for large banks, $3,485  for midsize banks, and $5,827 for credit unions.
In some cost categories credit unions reported higher costs than their  bank counterparts—cash services, and infrastructure and processing.  The average cost for cash services, on a per-ATM basis, was $6,847 for  credit unions, $3,765 for midsize banks, and $3,495 for large banks.  Similarly, the average cost for infrastructure and processing, on a per- ATM basis, was $7,958 for credit unions, $3,494 for midsize banks, and  $1,191 for large banks. In contrast, credit unions’ costs for network fees  were significantly lower than those of the banks, with an average cost, on  a per-ATM basis, of $150 for credit unions, $331 for large banks, and  $340 for midsize banks. For more information on average per-ATM  costs across the three types of operators in all cost categories, see  appendix II.
Community bankers we interviewed reported that their leading costs were  investments in hardware and software, largely to upgrade older machines  for compliance with Americans with Disabilities Act (ADA) requirements,  or to purchase new machines all together. Specifically, one  representative told us his bank spent more than $52,000 to upgrade the  software in the bank’s 26 ATMs, a cost of approximately $2,000 per  machine. The community bankers noted that while the newer machines  are more expensive, they offer the customer more functionality and value  due to their enhanced capabilities, such as being able to scan and  deposit checks. The other prevalent costs for the community bankers  were fraud (prevention efforts and losses), repairs, processing, and  network fees.
Cost data are more limited for independent ATM operators, making  identifying key costs difficult. One large independent ATM firm that we  surveyed reported that its top five calendar year 2011 per-ATM costs (as  a percentage of all costs) were (1) rent, (2) infrastructure and processing,  (3) cash services, (4) hardware and software investments, and (5) bank  sponsorship costs. Meanwhile the smaller firm that we surveyed reported  that its top five calendar year 2011 costs (as a percentage of total costs)  were (1) hardware and software investments, (2) maintenance and  repairs, (3) cash services, (4) infrastructure and processing, and (5)  rent. In addition to the cost information gathered through the survey, we  interviewed two small independent ATM firms, and—like the two firms  that participated in the survey—they told us their key costs included cash  services and processing, among others. In addition, we interviewed  officials from another large independent firm who provided us with cost  data that indicated that the firm’s top costs for calendar year 2011 were  rent, cash services, and maintenance and repair.
section_title: Increasing Costs and Declining Revenues Are Prompting Some Changes in ATM Operations
paragraphs: Most operators included in our study—financial institutions and  independent firms—reported that overall ATM costs have increased over  the past 5 years and they expect that they will continue to do so. Ten  financial institutions we surveyed reported that per-ATM costs had  significantly increased in the past 5 years, ten reported costs had slightly  increased, and five reported costs remained about the same. The cost  drivers most frequently cited by survey respondents were upgrading to  more versatile ATMs—with functions such as check-imaging—complying  with ADA requirements, and upgrading software. Other cost drivers the  financial institution representatives reported were increasing fraud  prevention efforts, adding ATMs to their fleets, and paying more in  network fees. As previously discussed, the community bankers we  interviewed also indicated that ATM upgrades to comply with ADA  requirements were a leading cost driver in calendar year 2011, and some  said network costs had increased as well over the past 5 years. The two  independent operators in our survey reported their costs had increased  slightly over the past 5 years. One operator noted higher manufacturing  costs as a driver and the other reported an increase in fuel prices (which  increases the costs to transport cash to the terminals via armored carrier).  The two independent operators we interviewed also said their overall  costs have risen in the past 5 years, for armored carrier services and  network fees. They also reported increased rent costs, among others.  Some of the operators noted that the costs associated with certain  actions could yield future savings. For example, while the cost of  purchasing the newer machines has increased, those ATMs have  improved technology, so service costs have declined. Similarly, one  operator reported that with the expanded function of deposit-imaging, the  newer ATMs have reduced paper costs.
Many of the operators told us that during that same 5-year period, where  costs have increased, ATM revenues have decreased. As previously  discussed, ATM operators collect revenues from fees charged during  some ATM transactions. In our survey, 14 financial institution operators  reported that their per-ATM revenues had decreased—6 said they had  done so significantly, and 8 said slightly. In contrast, 6 operators reported  that revenues remained about the same, and 4 reported a slight increase  during that same period. The most frequently cited reason the operators  gave for the decreased revenues was declining transaction volumes— both overall and among non-account holders, who typically would  generate income for the ATM operator through surcharge fees. Some  financial institution operators stated that transaction levels are down due  to the greater availability of surcharge-free networks and consumers  obtaining cash at point-of-sale transactions, among other things. Several  of the community bankers we spoke with expressed similar views that  ATM revenues, along with transaction levels, have decreased generally  over the past 5 years. The two independent operators in our survey  reported their revenues had significantly decreased over the past 5 years,  but cited reductions in their interchange fee revenues as a primary factor.  The two smaller independent firms we interviewed reported similar issues  with reduced interchange revenues.
Looking forward, many of the operators indicated they expect that costs  would continue to rise and that revenues would remain flat or decline in  the future. For example, our survey results showed that 18 out of 25  financial institution operators anticipate ATM costs will increase in the  future. The main drivers cited for these future increases are further  investments in new and enhanced ATM terminals or upgrades that will be  needed in order to comply with new or enhanced industry wide data  security standards. The community bankers and one independent firm  we interviewed expressed similar views that ATM costs will continue to  rise. Similarly, of the ten financial operators that addressed future  revenue trends in our survey, seven indicated they anticipate a decline,  due primarily to fewer transactions. Likewise, one of the two independent  firms that participated in our survey also said it anticipates future  revenues will be flat.
ATM operators reported taking various steps to adapt to the rise in costs  and decline in revenues. For example, two credit unions reported in our  survey that they recently raised their surcharge fee amounts in response  to rising costs. Another credit union reported it was being more prudent in  placing ATMs in new locations by first performing extensive evaluation of  traffic flows, surrounding competition, and associated costs before  committing to a new location. One of the large banks noted that because  average revenues per ATM will likely continue to decline as consumers  continue to avoid incurring surcharges, the bank would focus more on  serving its own customers with ATM placements. Finally, some of the  community bankers we interviewed said that as ATM transaction levels  decline, so will their investments in ATMs. The owner of one one  independent ATM firm we interviewed told us that independent operators  need to seek opportunities to diversify their portfolio of ATM services,  such as establishing or expanding branding partnerships in order to  increase revenues. He also noted that maximizing the number of  transactions on a per-ATM basis will be important. One large independent  firm reported in the survey that as interchange fees and resulting  revenues decrease, merchants—in those cases where they set fees—will  increase the surcharge amounts to make up the difference. However, as  we previously discussed, there are many factors taken into account when  setting fees, and several of the operators told us that setting fees too  high, above neighboring competitors, could discourage consumers from  using their ATMs.
section_title: Agency Comments
paragraphs: We provided a draft of this report to CFPB, FDIC, the Federal Reserve,  NCUA, and OCC for their review and comment. CFPB, the Federal  Reserve, NCUA, and OCC submitted technical comments which were  incorporated where appropriate.
We are sending copies of this report to CFPB, FDIC, the Federal  Reserve, NCUA, and OCC, interested congressional committees,  members, and others. In addition, this report will be available at no  charge on our website at http://www.gao.gov.
Should you or your staff have questions concerning this report, please  contact me at (202) 512-8678 or cackleya@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. Key contributors to this report are listed in  appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report reviews the fees paid by consumers when conducting  automated teller machine (ATM) transactions, as well as the costs borne  by ATM operators in providing those services. Specifically, the objectives  of this report are to discuss (1) the business models for ATM operators— financial institution and independent firms—and how they set ATM fees,  (2) the amounts of fees that consumers incur to conduct ATM  transactions and how these fees changed over time, and (3) the reported  costs of ATM operations for financial institution and independent ATM  operators and how costs and revenues are expected to change.
To understand the history of ATMs, how ATM transactions are processed,  and requirements for ATM operators, we reviewed prior GAO, regulatory,  and industry reports on ATM fees and operations, and we interviewed  relevant officials from the Board of Governors of the Federal Reserve  System (the Federal Reserve), the Federal Deposit Insurance  Corporation (FDIC), the Office of the Comptroller of the Currency (OCC),  the National Credit Union Administration (NCUA), and the Bureau of  Consumer Financial Protection, commonly known as CFPB. In addition,  we interviewed officials from five associations: American Bankers  Association (ABA) and the Independent Community Bankers of America  (ICBA), which represent various sectors of the banking industry; the  National ATM Council and the ATM Industry Association (ATMIA), which  represent independent ATM operators; and U.S. PIRG, a federation of  independent, state-based, citizen-funded organizations that advocate for  consumer interests. We also interviewed representatives from two  national banks, a credit union, one large independent ATM firm, three  electronic funds transfer (EFT) networks, and a financial institution that  sponsors independent ATM operators.
In order to gather information on ATM costs and operations for smaller  financial institutions and independent ATM firms, we conducted two group  interviews with representatives from nine community banks and two  interviews with smaller independent ATM firms. We identified these firms  with assistance from ABA, ICBA, and ATMIA. In addition, we relied on  information provided to us by ATMIA that described the composition of  the independent operator market—specifically, the percentage of ATMs  owned by operators versus those operated by merchants. This  information could not be corroborated because no comparable data were  available, either publicly or from the financial regulators and other industry  sources we asked. However, we determined that our use of the  information from ATMIA was appropriate because it is used to describe  the independent ATM market and provide context.
To discuss the operations and costs for ATM operators, in addition to the  interviews discussed above, we surveyed a nonprobability sample of  financial institutions and independent firms that operate ATMs to collect  information on
ATM operations and business models,
ATM transaction levels for calendar year 2011,
ATM costs for calendar year 2011 in 12 specific cost categories, overall ATM cost and revenue trends for the past 5 years and in the  future, and  factors ATM operators consider when setting ATM fees.
In order to gain cost and operational information from ATM operators of  various sizes, we deployed a survey to the 10 largest banks and 10  largest credit unions (by asset size), 10 randomly selected midsize banks  (with assets between $10 billion and $50 billion), and 4 large independent  ATM firms (with 10,000 or more ATMs in their portfolios). To select the  banks, we used data from SNL Financial—a private financial database  that contains publicly filed regulatory and financial reports. We eliminated  those that did not offer personal checking account services, as well as  any online banks, since they generally do not maintain substantial  numbers of ATMs. To select the credit unions, we obtained a list of the  largest credit unions, by asset size, from NCUA. Because none of the  regulators and business associations we spoke with were able to provide  data on the total population of independent ATM operators, and no data  are publicly available, we relied on estimates provided to us by one of the  largest independent operators as to the size and geographic locations of  the independent firms in the industry. We used that list to select the firms  and were able to verify the information provided only in the cases where  the firm responded to the survey.
For the survey questionnaire, we developed 12 categories (11 applied to  all operators, and 1 was a cost incurred only by independent ATM  operators) in order to capture information on a broad range of ATM  operational costs. After we drafted our initial cost categories, we asked for  comments from knowledgeable officials at the Federal Reserve, CFPB,  ABA, and a consulting firm that works extensively with the independent  ATM industry. We conducted six pretests to verify that (1) the questions  were clear and unambiguous, (2) terminology was used correctly, (3) the  questionnaire did not place an undue burden on respondents, (4) the  information could feasibly be obtained, and (5) the survey was  comprehensive and unbiased. We chose the six pretest institutions to  include various sizes of ATM operators: two large banks, one large credit  union, one midsize bank, and one large and one small independent ATM  firm. We conducted the pretests over the telephone. We made changes to  the content and format of the questionnaire after each of the six pretests,  based on the feedback we received. For additional quality control, an  independent evaluator within GAO also reviewed a draft of the  questionnaire prior to its administration. Furthermore, we determined— based on the pretest with the smaller independent ATM firm—that the  questionnaire would be overly burdensome for smaller firms to complete,  potentially leading to minimal participation. For this reason, we limited our  independent ATM firm sample population to firms with 10,000 or more  ATMs.
We sent the questionnaire by e-mail in an attached PDF form that  respondents could return electronically after marking check-boxes or  entering responses into open answer boxes. Alternatively, respondents  could return the questionnaire by mail after printing the completed form.  Through e-mails and phone calls in advance of the questionnaire, we  determined the best contact at each financial institution or independent  firm. We e-mailed the questionnaire with a cover letter to financial  institutions between July 31 and August 1, 2012, and independent ATM  firms between September 5 and September 11, 2012. Three weeks later,  we sent a reminder e-mail to everyone who had not responded. We  telephoned all respondents who had not returned the questionnaire after  4 weeks and asked them to participate. Completed questionnaires were  accepted until September 28, 2012, for financial institutions and October  31, 2012, for the independent ATM firms.
Questionnaires were completed by 9 out of 10 large banks, 9 out of 10  credit unions, 8 out of 10 midsize banks, and 2 out of 4 independent ATM  firms. However, the number of respondents varied by question.  Specifically, three large banks and one credit union completed sections of  the questionnaire on ATM transaction levels and overall cost and revenue  trends, but did not submit dollar amounts for the cost categories. As  previously discussed, we made multiple contacts by telephone and e-mail  to nonresponding institutions, but one large bank, one credit union, two  midsize banks, and two of the independent ATM firms declined to  participate.
The practical difficulties of conducting any survey may introduce errors,  commonly referred to as nonsampling errors. For example, difficulties in  interpreting a particular question, sources of information available to  respondents, or data analysis can introduce unwanted variability into the  survey results. We took steps in developing the questionnaire, and in  collecting and analyzing the data, to minimize such nonsampling error.  Almost all responses from the PDF forms were directly read into a data  file, and two analysts independently verified that all information provided  in the forms was read in correctly. For the two forms that could not be  read into the file, one analyst keypunched the responses and another  verified the entries. All data analysis programs were independently  verified for accuracy.
We were not able to independently verify the cost information submitted  by survey respondents. However, during the pretests and in the survey  questionnaires we asked the respondents to tell us what sources they  would or did use in calculating the costs they reported. Commonly cited  data sources for the costs included internal accounting reports and billing  statements from external third-parties, such as processors. Based on the  information provided on the cost data sources and follow-up calls with  survey respondents, we determined the data they reported were  sufficiently reliable for our purposes.
Using the data provided by the survey respondents, we calculated the  number and type of ATM transactions in calendar year 2011, the  percentage of total costs represented by each cost category, and the  average per-ATM costs for each category. Due to the sensitive and  possibly proprietary nature of the information we collected with the  survey, we aggregated the cost data at a high level and presented it in a  way that prevents individual organizations from being identified. For the  four questions that asked about past and future cost and revenue trends,  as well as the factors the operators take into account when setting fees,  we performed a content analysis. Specifically, we analyzed the responses  for each question and then grouped them into like categories. A second  evaluator reviewed the categories to ensure that we were consistent in  our coding. In any instance where the second reviewer disagreed with a  categorization, team members met to discuss the categories and reached  consensus on the final category assignment for each response. The  numbers of responses in each content category were then summarized  and tallied. For more detailed information on the survey results, see  appendix II.
To report on the amounts of fees that consumers pay to conduct  transactions at financial institution ATMs, and how these fees changed  over time, we purchased and analyzed data on surcharge and foreign  ATM fees charged by banks and credit unions from 2007 through 2012  from Moebs $ervices, Inc. (Moebs), a market research firm that  specializes in the financial services industry. Moebs collected its data  through telephone surveys with financial service personnel at each  sampled institution. In the surveys, callers used a “mystery shopping”  approach and requested rates and fees while posing as potential  customers. The statistical design of the survey for each year consisted of  a stratified random sample by (1) institution type, (2) institution size, and  (3) regions of the country defined by metropolitan statistical area and  state.
The surveys were completed in June for each of the years we requested,  except for 2010, when the survey was completed in July. Table 3 shows  the number of financial institutions for which we obtained data.
Using the Moebs data, we computed weighted estimates and 95 percent  confidence intervals of the percentage of institutions charging surcharge  and foreign fees and weighted averages and medians of these fees. All  percentage estimates presented in this report have a margin of error of  +/- 5 percentage points or fewer, and all average and median estimates  have a relative margin of error of +/-5 percent or less, unless otherwise  noted. All differences between estimated values identified in this report  are statistically significant at the 95 percent confidence level (p-value <=  0.05), unless otherwise noted. We also examined the differences  between the estimated prevalence and average fees for type and size of  financial institution, as well as geographic region and type of location of  the financial institution separately. We did not conduct a multivariate  analysis using all of these factors, control for all factors at once, or control  for additional factors in our analysis. To evaluate trends in ATM fees, we  adjusted the numbers for inflation to remove the effect of changes in  prices. The inflation-adjusted estimates used a base year of 2012 and  Consumer Price Index calendar year values as the deflator. We reviewed  interviews and analysis from our previous work on bank fees to  understand Moebs’ methodology for collecting the data and ensuring its  integrity. In addition, we conducted reasonableness checks on the data  we received and identified any missing, erroneous, or outlying data. We  also worked with Moebs representatives to ensure our analysis of their  data was correct. We determined that the Moebs data were reliable for  the purposes of this report.
Since data on ATM fees charged by independent operators were not  available, we engaged the services of another market research firm— Informa Research Services (Informa)—to conduct “mystery shops” at 100  judgmentally selected independent ATMs. We selected 10 ATMs in each  of the top 10 metropolitan statistical areas. In order to ensure we captured  fee information from a wide variety of locations frequented by consumers  on a regular basis, we directed Informa to choose ATM locations that  covered the following types of stores: drug stores, grocery stores, gas  stations/convenience stores, and liquor stores. We excluded ATMs at  airports or casinos—locations where most consumers would not go on a  regular basis and for which, according to market research, there is  typically a higher fee. We also excluded ATMs at supermarket chains that  were likely to have a bank branch or an ATM operated by a bank or credit  union on the premises because the focus of this part of our study was  ATM fees charged by independent operators. Prior to making the final  selections, Informa contacted the locations and verified that the ATMs  were nonbank operated and that they were in working order. Locations  having bank-operated or branded ATMs or machines that were not  working were replaced with locations having independent and functioning  ATMs in the same neighborhood, or as close as possible.
The mystery shop process involved having the shoppers go to each  selected ATM and use their own debit card to conduct a transaction. The  shopper documented (1) the surcharge fee amount that was posted on  the ATM, (2) the surcharge fee amount that appeared on the screen after  the transaction was begun, and (3) the surcharge fee amount printed on  his or her receipt. The mystery shoppers entered this information into an  online database. In addition, the shoppers took pictures of the ATM,  screen, and their receipt, which Informa staff used to verify that shoppers  correctly recorded the fee information and that the correct images were  attached to the correct responses. Finally, the receipts were double  checked against the location addresses to ensure that the shoppers  visited the correct ATM. We then analyzed the data we obtained from  Informa and computed the average surcharge fees charged to mystery  shoppers for ATMs included in the sample. These data indicate what  independent ATM fees were on a particular day in 2012 at those 100  ATMs and are not generalizable to the population of independent ATMs in  the United States.
We reviewed documentation submitted by Informa to understand their  methodology for collecting the data and ensuring their integrity. We  conducted reasonableness checks on the data we received and identified  10 mystery shoppers who did not report a fee printed on their ATM  receipt. We instructed Informa to conduct follow up on these cases, which  included checking to see if the mystery shopper used a card that was part  of a surcharge-free network, and in certain cases, to send an additional  mystery shopper to the ATM. We also worked with Informa  representatives to ensure our analysis of their data was correct. We  determined that Informa’s data were reliable for the purposes of this  report.
We conducted this performance audit from November 2011 to April 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Selected Results from GAO’s Survey on ATM Operator Costs and Operations
paragraphs: This appendix presents selected results from GAO’s survey on ATM  operator costs and operations. We surveyed financial institution and  independent ATM operators to collect information on their business  operations and models, costs, and transaction levels for calendar year  2011, and what factors they take into account when setting fees. The  survey was deployed to the 10 largest banks and credit unions (by asset  size) and 10 randomly selected midsize banks (with assets between $10  billion and $50 billion). We designed and deployed a separate survey to  four independent ATM operators that operate 10,000 or more ATMs, and  we received responses from two. We were not able to independently  verify the cost information submitted by survey respondents. However, we  asked the respondents to tell us what sources they used in calculating the  costs they reported. They relied on sources such as internal accounting  reports and third-party bills. Based on the source information provided  and follow-up call with survey respondents, we determined the data they  reported were sufficiently reliable for our purposes. None of the costs or  operations data we collected are generalizable to ATM operators at-large.
Table 4 summarizes the number and size of financial institution ATM  operators that participated in our survey, as well as the number of ATMs  they were operating as of December 31, 2011.
We collected similar information from independent ATM operators. In  addition to owning and operating their own ATMs, independent ATM firms  offer a wide range of ATM-related services to merchants and other  entities that own ATMs, such as monitoring and maintaining appropriate  cash levels in terminals and processing transactions. There are four  primary business models for independent ATM operators; therefore our  survey asked for information on the number of ATMs for each model. In  both the “turnkey” and “merchant-assisted” business models, the  independent operator owns the ATM. In the turnkey model, the operator  is responsible for most aspects of the ATM’s operations, while the  merchant is responsible only for providing a place to locate the ATM and  the electricity to operate it. The merchant-assisted model is similar to  turnkey, but the merchant provides and loads cash into the machines, as  well as provides basic maintenance. In the “merchant-owned and loaded”  and “merchant cash-assisted” models, the merchant owns the ATM and is  responsible for many of the operations. However, in the merchant owned-  and loaded model, the merchant manages and loads cash into the ATM,  while in the merchant cash-assisted model, the independent operator  handles those tasks. Table 5 summarizes the number of independent  ATM operators that participated in our survey, as well as the number of  ATMs they were operating under each business model as December 31,  2011.
Tables 6 through 10 summarize the reported number and types of  calendar year 2011 ATM transactions for the financial institutions and  independent ATM operators that participated in our survey.
Table 11 shows the average reported per-ATM cost for financial  institutions for each of the cost categories in our survey questionnaire.  We are not able to present similar results from the independent operator  survey since only two out of four firms responded to our questionnaire.  As shown below, among the data reported by the financial institutions,  there was a high level of variability across the financial institution types.  For example, there are several instances in which the per-ATM average  cost for one financial institution type is much higher or lower in a given  category than the average of the other financial institution types. There  was also variability in the number of responses for each cost category,  also shown in table 11. Finally, due to the small size and nature of the  sample, these results are not generalizable to the larger population of  U.S. financial institutions. The descriptions of the cost categories listed  below are reproduced verbatim from the survey questionnaire, and all  data reported are for calendar year 2011.
section_title: Appendix III: Analysis of the Estimated Prevalence and Average Amount of ATM fees from 2007 to 2012
paragraphs: In addition to the analysis of estimated average ATM fees and their  prevalence for 2012 that we presented in the report, we also conducted  this analysis for 2007 through 2011. This appendix shows the estimated  prevalence and average amounts of ATM fees based on four factors  discussed in the report: type, size, location, and geographic region of the  financial institution. We analyzed data from Moebs $ervices, Inc. (Moebs),  a market research firm specializing in financial services data, to assess  ATM fees charged by financial institution ATM operators. Moebs provided  data gathered through telephone surveys for each of the years 2007  through 2012, based on statistically representative samples of financial  institutions. See appendix I for more detailed information on the  characteristics of the data. We examined the differences between the  estimated prevalence and average fees for type and size of financial  institution, as well as geographic region and type of location of the  financial institution, separately. We did not conduct a multivariate analysis  using all of these factors or control for any additional factors in our  analysis. Dollar amounts for ATM surcharge and foreign fees in this  appendix are in 2012 dollars, calculated using the Consumer Price Index  calendar year values. We analyzed the prevalence of charging a  surcharge and foreign fee, and then we excluded financial institutions that  did not charge a fee from our calculation of the average fees. We  computed weighted estimates and 95 percent confidence intervals of the  percentage of institutions charging surcharge and foreign fees and  weighted averages of these fees.
subsections: section_title: Estimated Prevalence and Amounts of Surcharge and Foreign Fees by Type of Financial Institution
paragraphs: We evaluated two types of financial institutions: banks and credit unions.  Tables 12 through 15 show the variation in estimated prevalence of  surcharge and foreign fees and estimated average surcharge and foreign  fees for banks and credit unions from 2007 through 2012.
We evaluated three sizes of financial institutions: small financial  institutions with assets less than $10 million, medium financial institutions  with assets between $10 million and $999 million, and large financial  institutions with assets of $1 billion and more. Tables 16 through 19 show  the estimated prevalence of surcharge and foreign fees and estimated  average surcharge and foreign fees for small, medium, and large financial  institutions from 2007 through 2012.
We evaluated four locations of financial institutions: large city, rural, small  city, and suburban. Tables 20 through 23 show the estimated prevalence  of surcharge and foreign fees and estimated average surcharge and  foreign fees for financial institutions located in large city, rural, small city,  and suburban locations from 2007 through 2012.
We evaluated four geographic regions of financial institutions: East,  Midwest, South, and West. Tables 24 through 27 show the estimated  prevalence of surcharge and foreign fees and estimated average  surcharge and foreign fees for financial institutions located in the East,  Midwest, South, and West from 2007 through 2012.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Paul Schmidt (Assistant  Director), Jim Ashley, Bethany M. Benitez, Katie Boggs, John Karikari, Jill  Lacey, Kristeen McLain, Marc Molino, Christine San, Jennifer Schwartz,  and Andrew Stavisky made significant contributions to this report.