2009): "Pay for ATM Usage: Good for Consumers, Bad for Banks

We compare the effects of the three most common ATM pricing regimes on con-sumers ’ welfare and banks ’ profits. The regimes differ in the number of usage fees customers have to pay when they make a foreign withdrawal. Under regime one, the ATM usage is free. Under regime two, customers pay a foreign fee per foreign with-drawal and under regime three they pay a foreign fee and a surcharge. We show that paradoxically, increasing the number of available usage fees adversely affects banks’ profits: it makes banks deploy more ATMs because usage fees introduce differentia-tion between banks ’ networks. Consumers ’ welfare is higher when ATM usage is not free. Consistently with empirical works, we show that consumers are even better off under surcharging when travel costs to reach cash are high. Our results also shed light on a recent regulatory reform of the interchange scheme, namely the “direct charging model ” proposed by the Australian regulatory authority. JEL classification: L1,G