Is There a Customer Relationship Effect from Bank ATM Surcharges?

Abstract

This paper investigates the use of ATM surcharges as a strategic device to increase bank profitability. We show that ATM surcharge changes can have both a direct effect on bank profitability and an indirect effect via customer switching and a related customer relationship effect. That is, customer switching results in an increase in the demand for other services provided by the surcharge-increasing bank. Using unique databases, we provide evidence to show that overall bank profitability is favorably affected by surcharge increases. We also show evidence supporting the existence of an indirect effect, especially for larger banks.