To Surcharge or Not to Surcharge: An Empirical Investigation

34 Pages Posted: 7 Nov 2001

See all articles by Timothy H. Hannan

Timothy H. Hannan

Board of Governors of the Federal Reserve System

Elizabeth K. Kiser

Board of Governors of the Federal Reserve System

Robin A. Prager

Board of Governors of the Federal Reserve System

James McAndrews

Wharton Financial Institutions Center

Date Written: October 2001

Abstract

This paper investigates depository institutions' decisions whether or not to impose surcharges (direct usage fees) on non-depositors who use their ATMs. In addition to documenting patterns of surcharging, we examine motives for surcharging, including both direct generation of fee revenue and the potential to attract deposit customers who wish to avoid incurring surcharges at an institution's ATMs. Consistent with expectations, we find that the probability of surcharging increases with both the institution's share of market ATMs and the time since surcharging was first allowed in the state, and decreases with the local ATM density. Further, we find evidence consistent with the use of surcharges to attract deposit customers who are new to the local banking market, but find no evidence that larger banks use surcharges as a means to attract existing customers away from smaller local competitors.

Keywords: ATM, surcharge, bank, pricing

JEL Classification: G21, L11

Suggested Citation

Hannan, Timothy and Kiser, Elizabeth K. and Prager, Robin and McAndrews, James, To Surcharge or Not to Surcharge: An Empirical Investigation (October 2001). FEDS Working Paper No. 2001-38, Review of Economics and Statistics, Vol. 85, No. 4, pp. 990-1002, 2003, Available at SSRN: https://ssrn.com/abstract=288552 or http://dx.doi.org/10.2139/ssrn.288552

Timothy Hannan (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2919 (Phone)
202-452-3819 (Fax)

Elizabeth K. Kiser

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Robin Prager

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-3643 (Phone)
202-452-3819 (Fax)

James McAndrews

Wharton Financial Institutions Center ( email )

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States
9176090086 (Phone)
19104 (Fax)

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