How can banks afford to refund ATM fees?

(My apologies if this was covered elsewhere. I did a search on “ATM”, and it responded that the word was too short. Then I searched on “ATM fees” - with the quotes - and all I got was threads about “fees”.)

I keep hearing ads for banks who will not only let you use their ATMs for free, but they’ll even reimburse the fees that other ATMs charge. Some seem to limit this to bank-run ATMs, but others seem to explicitly include any ATM, even the privately-owned ones in the convenience store that seem to charge more than average.

In other words: I use my card to get $100 from the machine. The machine warns me that it will charge me a $5 transaction fee. I say okay. The machine pulls $105 from my account, gives me $100 of it, and keeps $5 for its owners. Then, at the end of the month, my bank puts $5 back into my account to reimburse me for the transaction fee.

Why would my bank do that? Where’s the profit for them? I understand that my bank has a lot of customers, and this is certainly a good way to attract new customers, but many of the ads for this service claim that they’ll do this even without me having to maintain a minimum balance in my account. Under such conditions, I could easily use this service a dozen times a month, and rack up $50 in charges. In fact one such commercial says “You can save $200 a year in fees – or even more!” How can the bank afford to do that?

It sure sounds to me like a great example of “If it sounds too good to be true, it probably is.” Except that I have not heard any complaints against this practice. Where’s the catch?

The only explanation I can think of is this: By advertising “no minimum balance”, they hope to attract customers who tend to have close to nothing in their account, and then the bank will be able to charge $30 for each overdraft. Am I close?

There’s usually a limit to how many dollars per month they’ll refund.

As an aside, I’ve never seen anything close to a five-dollar ATM fee, even at the grodiest back-of-the-deli next-to-the-expired-beer kind of ATM.

Yeah, my mention of “convenience store” was a bad example. Sorry.

In the downtown of a city there’s too much competition for the fees to get that high. But elsewhere, different rules apply. I’ve seen $6 and $7 fees at places where one would not have many other options, like airports. I’ve heard that casinos are similarly high.

The bank is effectively increasing their network of ATM’s without the cost of installing and maintaining them themselves. The fees they have to reimburse might be in line with what it would cost them to own the ATM themselves.

(I once saw an ATM in a strip bar that had a $10 fee!)

I’m in a different country, but my wife’s banking arrangements work like this. The bank has no machines of its own (and just two tiny retail branches in a city of 3 million). I figure it works because they can offer their customers all the services of ATMs without having to buy, supply, maintain, administer or secure them. I imagine they also get a bulk rate for the largely predictable use of the various networks by their customers. Since she has free access to cash from any machine, she’s also liable to keep her cash float rather lower - which gives the bank more of her money to lend to others.

[Edit - what LionelHutz405 posted while I was posting]

Of course, a long time ago, children, ATM networks like Star didn’t HAVE service fees, at least not ones that were visible to the consumer. When I was living in Denver back in the late 70s / early 80s, I had a card from a Credit Union which had no ATM machines. Every ATM in the Denver area was on the Star system, so it didn’t matter. No fees. Of course, I discovered that in other places, like the Bay Area, not all bank ATMs were on the networks at that time. My card would work in Bay Area BofA machines, but not any of the other major banks.

Did it even give out real cash? I’ve been to one where the fee was ridiculous and they gave you fake money. There was a disclaimer indicating such, but it was tiny!

LOL, no the money was as real as the stripper’s boobs.

My bank will refund both the foreign ATM fee and the Bank service fee up to a total of 5.00 per transaction. Vegas casinos routinely charge $5 per withdrawl.

In our case, you can get the refund by going to the branch with the reciepts, or mailing them. Many people won’t go to that trouble, it’s just too much work.

So we get the advantage of saying we won’t make you pay those ATM fees, while still collecting most of them. In addition, while it may seem like a lot of money, this non-interest income doesn’t count for a ton of our income… so we can afford to refund it to avoid the cost of building and maintaining a larger network (we’re a large community bank)

And if you take out $100 at a casino, you get a hundred dollar bill as opposed to 5 $20’s like most places. I get why, but it’s still annoying.

I’m a little curious about the actual nuts and bolts of this transaction. Does the ATM operator still get their $5, but the bank pays it? Does the bank negotiate a more reasonable fee so part of the $5 get put back by the operator and the rest gets covered by your bank? If the latter, what’s the ATM operator’s incentive to negotiate down? Do they get kicked off the ATM network if they refuse?

There are four parties in an ATM transaction.

  1. Customer “Bob Consumer”
  2. Bank “Bank of America”
  3. ATM network “Star”
  4. ATM Operator “Let’s say Chase Bank has an ATM in Speedway”

The ATM operator doesn’t negotiate fees.
The ATM network is in a position to be open to negotiating service fees.

We eat the $5 that we refund. I’d be suprised if anyone is negotiating these fees down. On the other side of the coin though, we charge for non-customers to use our (admittedly limited) ATM network… so we make a little back there.

We basically assume it as part of our operating costs, but are able to make it up, because most banks make a ton of money… (I wish they’d pass it on to me!)

It may aid reader understanding to realize that these refunds do, to some extent, keep customers from switching banks due to unsatisfactory ATM locations.

My bank does this, but there is a limit of $6 of fees per month per account. I like it, because I can pretty much use any ATM I see, and as long as I don’t get out cash more than three or four times a month, it’s all free. It has definitely contributed to my long loyalty with my bank.

Big to-do here about towing companies that didn’t take checks or credit cards but did have an ATM that charged double digit fees. City passed a law saying they had to take credit cards.