Do Banks Need Surcharge-free Networks?

Twenty years ago, when cash was still a primary payment method, surcharge-free ATM access was an important competitive tool for smaller FIs including community banks and credit unions. Consumers were generally using cash for most small ticket purchases, sensitive to ATM-related fees and often chose their banking relationship based upon this kind of access. But times have certainly changed!  

Fast forward to the current day, and the importance of ATM access has declined substantially. There has been a steep decline in the number of ATM cash withdrawals in recent years and in cash share of consumer payments with the rise of mobile payments, online shopping, cash back at point of sale and the increased use of debit and credit cards. Consumers have reduced need and desire to pay with cash, which means the surcharge-free offering may no longer be strictly necessary to attract and retain them.

According to Phil Jarrell, debit card services expert at PRI, while there is clear value to customers who regularly use ATMs outside of the FI’s footprint when a surcharge-free network is supported, the financial impact to the FI may be significant. Why?

  • The bank loses revenue opportunity when a surcharge-free, non-customer transaction is performed at one of their ATMs.
  • The bank also loses revenue opportunities when its customers use their cards at another bank’s surcharge-free network.
  • Finally, the bank incurs additional expenses at other banks’ ATMs in the surcharge-free network, and some networks charge a monthly royalty for every card issued by the FI, whether or not they transact.

“To make an informed decision on whether to participate or continue participating in a surcharge-free network, the bank needs to understand the full financial impact of participating,” Jarrell said. “It’s time to dust off the strategic thinking and decide whether the offering still meets their stated goals and long-term objectives.”

Jarrell says financial institutions should closely evaluate how important the surcharge-free network is to their customers. ATM transaction volumes continue to decline, as debit cards have become preferred by many for smaller purchases.

In fact, the Federal Reserve Payments Study of 2022 showed that the number of ATM cash withdrawals dropped substantially from 2018 to 2021. 

“ATM cash withdrawals declined at a rate of 10.1 percent per year, falling to 3.7 billion in 2021. By value, ATM cash withdrawals also declined, but at a slower rate (2.7% per year), reflecting an increase in the average value of an ATM cash withdrawal from $156 in 2018 to $198 in 2021.” Federal Reserve Board – Federal Reserve Payments Study (FRPS)

Additionally, debit card interchange income is the top contributor to deposit-based non-interest income for most banks, and it’s a smart thing on which to focus growth efforts. In PRI’s article Growing Revenue with Your Debit Card Product, Jarrell noted several areas of the debit card business that represent significant revenue growth opportunities for banks, making it in the FI’s best interest to analyze its strategy of promoting the use of debit cards versus ATM surcharge-free network withdrawals.

Using cash has both declined as a form of consumer payment and is more expensive and less profitable for banks to handle. In PRI’s article Is Cash Dead?, Tim Holt, PRI founder, points out that for FIs, handling cash is costly, but debit cards bring in revenue.

“Financial institutions make little to no profit off of handling cash whereas they receive income from each card swipe,” Holt said. 

According to the Federal Reserve Bank of San Francisco’s consumer payment choice report, US consumers dramatically changed how they purchased goods and services at the onset of the 2020 pandemic, favoring credit cards by a significant margin and increasing their use of online payments.

“Analyzing the 2022 survey data that informs the Diary of Consumer Payment Choice, we found that 2020’s shift away from cash and toward credit card payments has continued. Consumers continued to reach for credit cards at a higher rate in 2022. Their use of on-line payments also remained elevated as compared to pre-pandemic payment habits. By contrast, consumer use of debit cards and cash held steady at 2020 levels. Cash share of consumer payments has declined from 31% in 2016 to 18% in 2023.” – 2023 Findings from the Diary of Consumer Payment Choice – Cash (

Customers can also obtain cash through other venues, such as cash back at point of sale to avoid ATM fees. FIs should study how many of its customers take advantage of its surcharge-free network, as it’s likely only a small number of holdouts repeatedly using the same ATMs on a weekly basis.

Jarrell said banks can consider limited ATM fee waivers/refunds as an option, particularly for premium accounts. Once the FI understands which consumers are regularly using ATMs in the surcharge-free network, it may consider a DDA that refunds up to three surcharges each month, for example. 

A consulting expert like PRI can provide the FI with an objective analysis of its partnership with surcharge-free ATM networks. What was a good idea 20 years ago may no longer serve the FI or its customers in today’s conditions and with future strategic objectives in mind.   


Federal Reserve Payments Study (FRPS) – Federal Reserve Board

Growing Revenue with Your Debit Card Product – PRI

Is Cash Dead? – PRI

2023 Findings from the Diary of Consumer Payment Choice – Cash –

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.

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