JANIS DODGE
Competing ‘worldwide’
First came the SUM network, a selective-surcharge program to help banks extend their reach and allow customers to avoid ATM fees. Now, driven by industry mergers and competition, some local banks and credit unions are paying for the fees their customers incur when they use an ATM anywhere in the world.
On Nov. 1, Salem Five Bank, a $1.7 billion bank, introduced free ATM service worldwide to its Gold Star Checking account customers. The new program entitles those customers to be reimbursed for any service charge assessed by the ATM’s owner, up to a maximum of $25 a month.
“It allows us to compete worldwide,” said Janis Dodge, senior vice president of retail banking at Salem Five. “[Salem Five does not] have an ATM on every corner.”
Despite being part of the SUM network and having an agreement with 7-Eleven convenience stores to allow the bank’s customers to avoid ATM fees at those locations, the bank said further enhancing convenience for its customers was important.
Dodge said bank executives identified a small ATM network as one of the institution’s key weaknesses compared with larger banks.
Kim Meader, executive vice president of business lines at Salem Five, said banks generally touch customers through four different mediums: branches, ATMs, phone and Internet. It became clear to Salem Five that its ATM network did not reach far enough for many of its customers.
At Natick-based Middlesex Savings Bank, where customers can be reimbursed a maximum of $15 a month for foreign ATM fees, the decision to offer such a program was made in September and intended to please customers who were tired of paying fees, not necessarily compete worldwide.
“The main reason [for the program] was [ATM fees] seems to be a sore point with a lot of consumers,” said A. James Lavoie, president and chief executive officer of Middlesex Savings. “We are trying to keep our own customers happy.”
The monthly reimbursement is part of Middlesex Savings’ Freedom Gold Checking where customers also enjoy other benefits such as free online banking with bill payment service and telephone banking, free checks and an individual retirement account annual fee waiver.
To qualify for the Freedom Gold checking, the bank combines all consumer loans and deposit balances, including IRAs and mortgages. Monthly fees and ATM network charges are waived as long as customers have a combined balance of $10,000.
In order to benefit from the ATM fee reimbursement, customers must have direct deposit or an electronic payment or maintain combined balances of $25,000 or more without the direct deposit or electronic payment.
Lavoie said because loan balances are used to qualify for the Freedom Gold checking, almost anyone with a loan is eligible to enjoy the reimbursement benefit.
Salem Five’s Gold Star checking offers benefits such as free checks, free online banking and bill pay and a $50 mortgage application discount.
To qualify for the account, customers must have a $5,000 minimum daily balance or a combined deposit ledger balance or outstanding loan balance of $20,000.
“It’s really a generic type of customer we’re looking for,” Meader said.
Lavoie said the $15 reimbursement is somewhat arbitrary. Executives determined that it was a reasonable amount of money for between eight and 10 ATM transactions a month.
At Salem Five, the $25 amount was determined after the bank reviewed customer usage. Dodge said the bank does track ATM use information. She also said the bank decided $25 would keep the bank competitive. However, the institution had to be careful on choosing the amount because there are certain Internal Revenue Service implications, Dodge said.
For Middlesex Savings, a $3 billion institution with locations in towns such as Framingham, Concord and Millis, it was important to offer ATM access without fees for customers who commute into Boston for work.
While customers have a better chance of coming across a SUM ATM in Boston, Lavoie acknowledges that sometimes customers see another ATM and still use it.
“It’s good to have both [SUM and ATM reimbursements],” said Lavoie. “SUM does give us [1,770] ATMs that people can use [without incurring a fee] – this just broadens it.”
Meader said adding the fee reimbursement initiative will likely bring more customers in because they can do business with a community bank without paying surcharges at ATMs.
Salem Five is also a member of the SUM network and said the newest program enhances the bank’s offerings.
“It was the next step to removing an obstacle,” Meader said.
While customers see a rebate on their monthly statement for ATM fees, the banks are incurring costs to offer these programs.
“It is an added cost to the bank,” Lavoie said. “It’s a decrease in revenue.”
But, Lavoie said it is still too early to gauge the total cost to Middlesex Savings.
Dodge said the bank reviewed the cost to the bank, which is still in question depending on customer usage. But, she said, the bank looked at the total cost of adding more ATM locations and deemed the reimbursement program to be more cost-effective.
Meader said the bank hopes to maintain good customers from the initiative and also attract new ones, which will bring in additional revenue.
“Cost is not a big part of it,” said Meader.
Credit the Idea
While Middlesex Savings and Salem Five market their new program, one financial institution in Massachusetts has been reimbursing fees for some time. Digital Federal Credit Union, based in Marlborough, has been offering a similar program for approximately five years, said Tim Garner, vice president of marketing and strategic planning at DCU.
Like Middlesex Savings, DCU requires customers to have direct deposit in order to enjoy a maximum of $5 in ATM surcharge reimbursements each month.
Garner said because the credit union does not have a nationwide network of ATMs, in order to hang on to customers, the credit union had to assure there were no barriers and implemented the reimbursement program.
“It has been successful,” Garner said.
Internet-based banks were also quick to offer ATM fee reimbursement because of the lack of their own ATMs. Salem Five, which was the first bank in New England on the Internet, said the reimbursement idea caught on now because the bank was looking to add more retail initiatives.
“It ties back to the innovative nature of the bank,” said Meader.
Lavoie said his institution looked at the reasons why a customer may not choose to bank with Middlesex Savings and came up with the reimbursement idea to overcome one of those obstacles.
Now a few months into the new program, Middlesex Savings is already reaping some of the hoped-for benefits. Lavoie said the bank has received compliments from existing customers and the institution has also attracted some new deposits.
Meader said Salem Five is releasing “very creative” print and radio ads to announce the new initiative.
Touting that customers can use any ATM on the planet, Salem Five’s new print ad points states: “New Guinea or New Hampshire. Free ATMs worldwide. No fees from us. No fees from them.”
Lavoie said in light of all the merger activity in Massachusetts, Middlesex Savings is trying to get its name out there and make its total package more attractive.
On its Web site, Middlesex Savings says the Freedom Gold Checking account with fee reimbursement “makes any color ATM your ATM” in reference to each bank’s signature color.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
