The Impact of ATM Surcharges on Large versus Small Banks: Is There a Switching Effect?

This paper uses a unique database to test the effect of ATM surcharges on larger versus smaller banks. Only nonbank ("foreign") users of ATMs pay ATM surcharges. Customers thus face incentives to switch accounts from smaller banks to larger banks in order to avoid high ATM surcharges. We find that, after we control for other bank factors, higher ATM surcharges result in a greater market share of deposits of larger banks and a lower market share for smaller banks, results that are consistent with customer switching. However, smaller banks can positively affect their market share by establishing larger ATM networks.