RDP 2012-03: ATM Fees, Pricing and Consumer Behaviour: An Analysis of ATM Network Reform in Australia 6. Conclusion

This paper develops a model of ATM fees that captures the salient features of the Australian ATM market. In particular, various ATM usage costs, often ignored in the literature, are explicitly incorporated into existing models and the number of banks modelled is increased to three from the usual two. These contributions are important for a number of reasons. First, including ATM usage costs in the model provides the complexity required to understand why, despite claims by the industry that maintaining foreign fees was required to cover own-bank processing costs, foreign fees have mostly been eliminated since the 2009 ATM reforms. Second, having three banks makes the model more realistic and provides a mechanism whereby interchange fee neutrality is maintained but foreign and direct fees no longer need to move in lock-step with changes in the interchange fee, matching the Australian experience.

The consumer response to ATM reform in Australia is a key feature of the data not explained by the model in this or any other paper on ATM fees. However, this paper demonstrates that in the presence of incomplete information, the shift towards direct charging may have contributed to this change in behaviour, even if the price of foreign transactions remained unchanged. In a similar vein, prompting – in this case, a question asking customers if they wish to cancel their foreign ATM transaction – may also have driven the observed consumer behaviour. Future work to incorporate incomplete information into a model of ATM fees would be a potentially useful contribution to the literature.