Will new ATM fee improve banks’ services?

Many bank customers have expressed displeasure at the recent introduction of a N65 Automated Teller Machine fee. But the Central Bank of Nigeria and the Bankers’ Committee are going ahead with its implementation from September 1 (today). The issue, however, is whether this can lead to better service delivery as promised by the banks, OYETUNJI ABIOYE writes

Like most service-delivery machines or devices in the country, the Automated Teller Machine service has been riddled with complaints; many times, it is either a total breakdown or a malfunctioning of the machines. This inefficiency has often led to frustration and disappointment for bank customers, with long queens at most ATMs. Amid this situation, the Central Bank of Nigeria and the Bankers’ Committee about two weeks ago announced the re-introduction of a (N65) ATM fee effective September 1 (today).

This came almost two years after the CBN and Deposit Money Banks had cancelled N100 ATM charge in December 2012. But the new CBN directive, dated August 13, and posted on its website, stated that instead of N100 per withdrawal, customers using other banks’ ATMs would now pay N65. The Director, Banking and Payment Systems Department, CBN, Mr. Dipo Fatokun, in the circular, stated that the central bank and the DMBs had agreed to re-introduce the ATM fee because the cost of transaction was becoming too burdensome for the banks to continue to bear.

He also said the new charge would become effective on the fourth ATM withdrawal in a month, thus making the first three withdrawals on other banks’ ATMs within the month free. he circular dated August 13, 2014, read in part, “The CBN hereby issues the following directives: The re-introduction of ‘remote-on-us’ ATM cash withdrawal transaction fee, which will now be N65 per transaction, to cover the remuneration of switches, ATM monitoring and fit-notes processing by acquiring banks; the new charge shall apply as from the fourth ‘remote-on-us’ withdrawal (in a month) by a cardholder, thereby making the first three ‘remote on us’ transaction free for the cardholder, but to be paid by the issuing bank.

“September 1, 2014 shall be the effective date for the implementation of the new charge; banks are expected to conduct adequate sensitisation to the customers on the introduction of the new fee; all ATM cash withdrawals on the ATM of issuing banks shall be at no cost to the cardholder.” The CBN, in collaboration with the Bankers’ Committee, had in December 2012 transferred the payment of the N100 fee on ATM cash withdrawal transactions to the issuing banks.

The fee was borne by the acquiring bank, issuing bank and switch companies at the commencement of the arrangement. Fatokun, in the latest circular, however, explained that issuing banks had during the commencement of the arrangement in 2012 decided to waive the issuer fee of N35, which should ordinarily have been an income to them. Consequently, the issuing banks only bore the cost of N65 each time their customers used another banks’ ATMs. The N65 cost (which covers the remuneration of switches, ATM monitoring and fit-notes’ processing by acquiring banks) is now being passed on to the customers.

The CBN said the new charge would help banks to improve on the ATM service delivery and ultimately put an end to the frequent malfunctioning and breakdown of the ATMS. It also argued that the new charge would make banks to deploy more ATMs across the country.

This is expected to put an end to the several multiple queues that have become the usual signpost of most of the ATMs in Nigeria. However, some industry stakeholders and customers have insisted that there is no justification for the imposition of the new N65 charge. A bank customer, Mr. Sola Omotola, said, “Every year, banks keep declaring higher gross earnings and profits. None of the banks made losses in the last quarter. The worst that happened was that an insignificant number of them made lower profits. “So, if banks are declaring profits after tax running into several billions of naira, on what ground are they passing this N65 charge to innocent customers who have been ripped off in other hidden bank charges? There is no reason for this in the light of the bumper profits the banks are declaring.”

Another bank customer, Mrs. Ngozi Nwachukwu, argued the fee could be sustained by the bank, having borne it for over two years. “If the N65 fee has been sustained since December 2012 when it was cancelled by the Bankers Committee, I believe it can still be sustained further. The CBN only needs to put measures or policies in place to keep encouraging the banks to continue to do this. I guess the new CBN governor is being too sympathetic to the cause of the banks.”

The Managing Director, MarkAB Investment Limited, Mr. Oladokun Dawodu, said the development might undermine the cash-less policy drive of the CBN, arguing that the new charge could discourage customers from using other banks’ ATMs. He also maintained that contrary to the argument in some quarters that the use of ATM attracted a fee in other countries, there were no fees charged for using the ATM in several countries of the world, citing the United Kingdom as an example. However, an associate professor of Economics and Director of Centre for Entrepreneurship Studies, Ekiti State University, Dr. Abel Awe, said the N65 fee could not have been too burdensome for customers, saying the amount was negligible compared to what customers often withdrew through the ATMs.

He also said the fact that banks declared profits running into billions of naira on quarterly basis did not mean they were liquid and solvent.

“I don’t see N65 charge as being too enormous for customers. I think it will also help to curb the indiscriminate use of the ATMs by bank customers. Look at the telecoms companies, imagine how they charge and deduct our money arbitrarily and nobody to protect us against it; I don’t think what the banks are doing is too much,” he added. A frontline economist and Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck, also felt the re-introduction of the ATM fee was not punitive.

He said the removal of the N100 ATM fee in December 2012 by the Bankers’ Committee was wrong in the first instance, arguing there was no way banks could recover their costs and improve their profitability. For instance, he noted banks had to pay the Asset Management Corporation of Nigeria’s levy, Nigerian Deposit Insurance Corporation’s charges and also lose money from Commission on Turnover charges, which were being gradually reduced and would eventually be phased out in the next two years. “Where do they expect banks to make profits after all these deductions? Don’t forget that banks have to invest and reinvest. So, it makes a lot of sense to return the charges for the ATM,” he added.

Some insider sources in the banks told our correspondent that many banks deliberately frustrated customers’ use of other banks’ ATMs with the frequent network problems to avoid paying the N65 levy for such service. They also said the rising cost of the N65 fee (occasioned by customers’ frequent use of the ATM cards on other banks’ machines) had affected banks’ ability to invest in the ATM maintenance and deployment.

A top official of the CBN, who spoke under the condition of anonymity because he was not authorised to speak on the matter, said, “With this new N65 charge passed to customers, banks will have enough to maintain those ATMs and also deploy more ATMs across the country. In other words, all these frequent ATM network problems will be reduced drastically, while several ATMs that have been breaking down will become functional. We will have more new ATMs deployed. By the time you put all these together, bank customers stand to enjoy better service.”

The Executive Director, Finance and Strategy, Sterling Bank Plc, Mr. Abubakar Suleiman, said the use of bank’s ATM “is still totally free of charge.” According to him, the introduction of the N65 charge is intended to limit the cost incurred by banks, and does not constitute profit.

“Banks are still left with the burden of the first three withdrawals by customers a month, which translates to N195 monthly charge. While this cost is less than the income on medium and high-value accounts, it is sufficient to render most low value accounts unprofitable, which will force banks to discontinue marketing such accounts,” he added. He also noted, “The last thing the country needs is a rollback of the financial inclusion campaign, which has resulted in a noticeable uptick in customer enrolment by banks and has created access to financial services for more than one million Nigerians in just over a year.

“The previous policy on limitless withdrawals might have benefitted those who were already financially included in the short term but would have harmed mostly poor people with banks scaling back investments for mass market and refocusing on the middle class.” But concerning the expectation of a better service delivery by banks based on the new ATM fee, analysts said they would wait to see how they hoped to fulfil the promise.

For instance, Awe said, “It will be difficult to comment on that proposal. However, between now and December, we should be able to see signs if those improved and better services that have been promised will be fulfilled.”