Monday, January 29, 2007

ATMs, Continued

Olaf read my post about the whole ATM-surcharge dealy and cruelly pointed out that I didn't actually, y'know, say whether I supported the NDP proposal. Nice of Olaf to give me the benefit of the doubt and not assume I'm a monkey on a string. (I will, however, perform a dance for bananas.) The short version is, yes, I do.

First things first. Either you think what's happening now is a problem or you don't. People are being forced, for a lack of options in their area, to use third-party ATMs that charge additional fees on top of their own banks charges. Like I said, either you think this is a problem or you don't. A reasonable argument could be made that nobody's putting a gun to people's heads and forcing them to use these things, but an equally reasonable argument is that people can't always plan ahead and when you need cash, you need it. I come down on the "yes, this is a problem", and more than that I believe this problem (unlike sundry others) is actually worth the Feds stepping in on.

The biggest reason is that this is a problem the feds created, in part. The wave of bank mergers during the 1990s allowed the consolidation of the industry and the shutting of now-redundant branches. Even in Toronto, the distance I had to travel between my "home branch" went from being 10 minutes to almost an hour (both by foot, for reference sake) because my branch got shut down during this period. This consolidation was a result of the mergers the Feds encouraged, not just allowed. When I was living in Ottawa, there was simply no convenient access to my own banks' ATMs on campus. By fourth year, the ATM I was using regularly near home had also been switched to a third-party ATM.

Now, my situation was hardly dire, but I was also living in the two biggest cities in Ontario. I can only imagine what the process has been like across the country. People are being forced to pay more than they had before because of a policy the Federal government actively pursued. It may seem minor, but once again anything that's an annoyance to me is probably a cause of serious anxiety for someone closer to poverty's edge.

In the comments thread below, I mentioned that Bell (a government protected-monopoly) is forced to allow the non-discriminatory use of its lines to third parties, without charging their customers extra fees. Given that banks these days are more networks than vaults (if you get my meaning) that may be a useful analogy. But there's one that I think is better: cable television.

In Canada, and across the US, it's common practice for governments to demand certain performance guarantees from cable television companies. For example, you might allow a company to build a new network, but only on condition that they build in the middle- and lower-class areas of a city, not just the richest. Does this raise the overall cost of the service? Marginally. But it makes sure that companies cannot abandon the low-profit parts of the market.

(I frequently use Communications Policy analogies because it's what I know best.)

Could a similar principle work with banks? I think it certainly could. ATMs, after all, are dramatically less expensive than operating in-person bank branches. Insisting that banks spend a small portion of their Crown-chartered profits to maintain decent service networks for the working class is hardly unreasonable, especially since they were all making plenty of money before the mergers that caused this whole problem.

Another possibility would be to make debit transactions zero-cost for the consumer and the business owner, thus eliminating the need for ATMs in large part. Either way, the government has some leeway for solving this problem.

4 comments:

Olaf said...

John,

First of all, we're going to disagree from the get go, because I reject your clearly stated premise that this is a problem. First of all, the amounts are piddly, and are zero if you choose the right bank. Second of all, a little planning or effort could save you the gross injustice.

Second of all, what happens when a grocery store moves away from its close proximity to your house? Do the feds step in? Should you get free cab fare? Or rather, should the grocery store be forced to compensate you for the extra time it took you to get there? Just because banks merged and yours was moved, is not a case for government action forcing a third party to provide you with a free service.

(As a side bar, I'm not sure what you mean by "a policy the government actively pursued", regarding bank consolidation, as I'm not completely familiar with the history. If you could explain to me what the "actively policy" entailed, I'd appreciate it).

Thirdly, your cable analogy is fallacious in that most areas, as far as I know, there is a cable monopoly, or close to it. This is not the case with banks, even if many banks have the same ATM policy, especially since some charge no user fees at all.

Insisting that banks spend a small portion of their Crown-chartered profits to maintain decent service networks for the working class is hardly unreasonable, especially since they were all making plenty of money before the mergers that caused this whole problem.

Ok, you seem to be proposing that banks make sure that there is reasonable access to their bank machines/branches, as opposed to making other banks subsidize your use of their machine, which I thought is what we were discussing.

Now I'm confused. Are you for the federal government, preventing by legislation, companies from charging money from customers for the use of their ATM service? Or are you just saying that bank access is a problem that should be considered?

john said...

"(As a side bar, I'm not sure what you mean by "a policy the government actively pursued", regarding bank consolidation, as I'm not completely familiar with the history. If you could explain to me what the "actively policy" entailed, I'd appreciate it)."

The govt has encouraged mergers of major Canadian companies, including telecom and finance. It's called a "national champion" strategy. The mergers were briefly predicated on the idea that the Banks would maintain a level of service, but well, that got left by the wayside.

"Are you for the federal government, preventing by legislation, companies from charging money from customers for the use of their ATM service? Or are you just saying that bank access is a problem that should be considered?"

Well, ideally I'd like to see the banks open more local branches. That's not going to happen. So next I'd like to see banks keep more of their own ATMs around, so people can use them without added fees.

But, if the banks can't be bothered to maintain even a basic level of service to the community, then the banks should be forced to pay their customers' additional user fees, which is the obvious result here. (Nobody, ever, is going to force someone to provide a "free" service, only free to the customer.)

And I have no idea what I'd propose in your grocery store example, because I don't think it suffers from the same problems. Seriously, in the last three places I've lived, new Loblaws and Sobey's have been sprouting up like weeds.

Olaf said...

John,

The govt has encouraged mergers of major Canadian companies, including telecom and finance. It's called a "national champion" strategy.

That doesn't really explain it. You claimed they "actively pursued" this initiative, as if it was all their idea, and thus should be held accountable for the consequences (or rather, the banks should be held accountable for the lack of government checks).

Did they provide subsidies or other financial inducements, or did they just not veto the mergers taking place among publicly traded companies in which the government had no stake? In either case, we'd have to weigh the pros and cons of the mergers before deciding that the government should hold the banks responsible for a single con.

But, if the banks can't be bothered to maintain even a basic level of service to the community, then the banks should be forced to pay their customers' additional user fees, which is the obvious result here.

This isn't the obvious result. The obvious result is that those banks with machines in malls and in the downtown core subsidize those banks with few or no ATMs.

Furthermore, I again would suggest that if you're not happy with the accessibility of your bank, than switch to a more accessible bank. In that way, banks in more accessible locations get more business, and the inaccessible banks lose business, providing a financial incentive to be more accessible, instead of a financial incentive to be less accessible. Again, I see no reason why this is some sort of pressing circumstance of inaccessibility where the government would be justified in stepping in.

And I have no idea what I'd propose in your grocery store example, because I don't think it suffers from the same problems.

Funny, the problems you cite come from personal experience (your bank moved), and mine comes from my own personal experience (long story short, there was a grocery store 30 seconds from me in university, before it shut down. I had no car and was forced to cab to all future grocery errands).

Shockingly, I never blamed this on the government, for not doing enough to nurture the economy in a way that would make grocery stores more accessible to me. Rather, I chose the closest grocery store and went there. Not as convenient as my old store, but worked well enough. And my cab fare was about 5 times your ATM fee.

john said...

Well, the biggest encouragement was simply verbal, but it came from Paul Martin when he was finance minister. Banks were paying a bit of attention.

More importantly, the govt. clearly said it wouldn't enforce the relevant competition laws, the single biggest inducement for concentration.

"Again, I see no reason why this is some sort of pressing circumstance of inaccessibility where the government would be justified in stepping in."

Another fundamental disagreement between the two of us. Whereas you seem to think the gov should only intervene in the case of natural disaster or act of God, I don't really have a bar that needs to be set for govt. intervention. The question is whether the intervention will net out as a benefit, not whether it's a "big" problem. As the difference in our experience indicates, what's a big problem to one person won't be to another.

That subjective problem makes it more sensible to adopt a utilitarian outlook -- unless you can demonstrate that this is going to be absolutely counterproductive (raising overall costs for users) than I don't see any sense in drawing a line around this stuff.