Sunday, 23 March 2008

The emotional turmoil of ATM charges

Whilst I was thinking about prices and how they affect us I was reminded of the irritating impact of ATM charges. A point raised in both Predictably Irrational and The Undercover Economist is how far we would go to pay a lower price for something. Of course it's relative. I might cross town to get a CD for £10 if the place nearest to me charges £15. But if I'm buying a suit worth £200 would I make the same journey to save £5? I seriously doubt it. Of course the proportionate value of the saving is much less in the second example, but it's still £5 I don't need to spend. (Incidentally I asked my other half the same question, and she said she probably wouldn't make the journey in either case.)

This isn't just an abstract issue for me. A year or two back the ATMs at Blackfriars station, which I pass through to and from work every day, changed from being NatWest, where you pay no charges, to those ones you increasingly see these days where you have to pay a fee to get cash out. In the case at Blackfriars the charge is now £1.85 per transaction, which is the highest I have seen anywhere so far. The result is that I now avoid those ATMs like the plague, whereas I used to use them all the time. In other words I will go out of my way to avoid the £1.85 charge.

I guess this is what the idea of loss aversion should make us expect. In effect ATM charges are a form of guaranteed loss (since I know I can get the service for free at numerous other locations). I can definitely attest that the idea of incurring that £1.85 charge is emotionally painful and I will do a lot to avoid it.

Unfortunately once in a while I am forced to use the ATMs at Blackfriars. Sometimes between leaving the office and getting to Blackfriars my wife texts me to ask me to get cash out of our joint account for shopping or whatever. If I have enough of 'my own' cash (funny concept when you're married I know but that's mental accounting for you) in my wallet I won't use those ATMs. But if I don't have enough cash I feel I am effectively forced to use them (using the nearest 'free' ATM would mean I have to leave the station and walk a fair distance, which in turn means I would miss my train and have to wait for another).

On the rare occaisons that I do have use these ATMs I now make a point of getting out a lot of cash. Usually the Mrs only needs me to get £20 out, but somewhere in my mind a £1.85 charge on a £20 withdrawl is getting on for 10% of the value of the cash. That seems ridiculous to me so I will typically get at least £40 out even if I don't need the extra £20 (and even then I feel very irritated by incurring the charge). Somehow I feel I am cutting my losses.

It's interesting to recount how I feel when I do incur the charge. Somehow I feel that I am being sort of punished for using the ATM, and that I have made the 'wrong' decision (rather than simply an adequate one) by using it. For me that is actually helpful. The emotional pain of the charge reinforces my desire to avoid those ATMs if at all possible. But I can't see how that can be a good thing long term for the company running the ATMs (why would you want to make your customers feel punished for using your service?). Obviously they must have concluded that the income they can derive from operating ATMs in a prime location is sufficient to put up with scaring off many potential customers.

More broadly the overall result of the introduction of charges at these ATMs for me is that I feel that a useful and convenient service has effectively been (emotionally) priced out of my reach. I can't believe that others don't feel the same way and I would be really interested to find out how traffic has changed at the ATMs since the charge was introduced. My totally unscientific view is that the ATMs are much less busy than they were. It used to be the case that in the morning there was often quite a big queue. Since the charge kicked in I don't think I have even seen a queue. Whilst that still makes sense in the narrow terms of the ATM operator's profits, somehow this seems to be an example of pricing having a very negative outcome.

A final point about my stupid reactions to the ATM charge. I am pretty sure that if the ATM operator were to now drop the charge to £1 per transaction I would use those ATMs more often. £1.85 is now the anchor, so something less than that will seem less painful and unfortunately I suspect I would therefore be willing to incur it more often. Whereas if the ATM had gone from being free to charging £1 a transation I bet it would have had a similar impact on my behaviour to the introduction of the £1.85 charge. So if I was the ATM opeator I would seriously think about reducing the charge. I hope I am strong enough to see through it if they do!


Miller 2.0 said...

I refuse to use the things on principle. As with all markets, this is not about who offers the lowest price, but who can get away with the highest.

Tom P said...

I think avoiding them if at all possible is the best course of action. It's f***ing annoying though!

Phil BC said...

Yes, they are incredibly annoying, and I avoid them on principle too. But being a provincial in a poor city with easy access to free ATMs it's never really a problem.

Overall I don't think it is irrational to go out of one's way to keep from using them. If everyone did that ATM charging would quickly disappear.

Tom P said...

That's a good way of looking at it. It would be nice if consumer pressure could get rid of charging.

I do wonder what the experience of the company operating the ATMs at Blackfriars is. I'm sure there has been a huge drop off in traffic. The problem is if they pack it in will they be replaced or will the ATMs just permanently close?

Jackson Jeffrey Jackson said...

I wonder if it has anything to do with LUL or Network Rail as the same has happened with the cashpoints next to the old Kings Cross Thameslink station.

Tom P said...

I did wonder that too. The dimished queues might actually be a good thing for the staff at Blackfriars because it eases the traffic flow where the ATMs are (which is at the top of the escalators and the stairs down to the exit).

Also I assume the operator must hire the location from Network Rail or TFL. But I NatWest can't have - why hire a location to provide something for free? It would be just be a cost for them. So maybe the change is the result of the station owner trying to derive revenue from the ATMs - resulting in an irritating change for those of us using the station.