The infrastructure behind ATMs
bitsaboutmoney.com
bitsaboutmoney.com
If you deal with commercially relevant quantities of cash, in addition to your own labor costs associated with it, your bank will assess a fee for depositing it. Larger retailers will negotiate their own bespoke rates, but the right ballpark for small businesses above a nominal amount is 3 bps, or $3 per $10,000 transacted.
As a regular consumer you can deposit cash without additional fees.
If you're running even a modest business, keeping large amounts of cash on-hand for any length of time is a business risk. Some vendors may not want to be paid in cash, particularly for larger payments.
Depositing it is the only way to deal with a lot of things.
- bank account fee - online and mobile banking fees - card "membership" fee - individual payment fees - ATM fees - incoming card payment fees - [probably more]
And the bank is already making money by lending out my money to others and charging interest. I'm not saying none of those fees are justified, but at some point you have to ask: have they not taken enough??
Why not itemize?
besides, you just wouldn't respect them in the morning if they did NOT take some money from you, would you?
Is OCR really that bad?
Still not 100% automatic. (There is also the anti-counterfeit component.)
> $3 per $10,000 transacted.
That doesn't sounds that bad. It's just not free.
If there’s a damaged or counterfeit note it spits it back out. This is certainly 100% automated and it tells you exactly how much you deposited afterwards.
Don't you think it's fair for the employee to get paid as well?
The fed, fdic and occ all maintain a variety of a&l rules that outline what categories of loans can be approved that range the gamut from in state/out state to subsidized loans/market rate loans. Thats before taking into account all the consumer protection frameworks.
All that is to say, if a bank gets to a loan/deposit ratio above .9 they are likely considered insolvent depending on the framework in question. The reserve requirement is no brake on their ability to loan out deposits, but there are lots of other ones that apply.
I think the thing that actually moved the fed to remove the reserve requirement was the big banks sitting in the 50-70 range (and of course the covid liquidity crunch). The monopoly we grant banks is in part so they will finance economic activity, if they aren’t doing that we’ve got a structural problem.
That doesn't mean the supermarket doesn't charge you for it. Supermarket too are massively profitable businesses.
Then, regarding supermarkets you'd be surprised as their business model isn't what you think it is. Since they pay their suppliers quite some time after being shipped (60 days in my country, it varies with the country but AFAIK there's always a delay) while they sell their stock much more quickly, which means the majority of what you buy from them, they haven't actually paid it, but borrowed with an interest rate of zero. When interest rates are high, they can make significant revenues from managing this cash flow alone.
[1]: https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...
Why do you think savings accounts have limits on it but you get interest on it? Because it's more stable and more reliable for them.
By "massively" do you mean margins of 2-4%?
In a fractional reserve system where by the Fed allows them to "create" money from thin air that is not needed so they charge to take the deposits
I understand these words but not how you’re putting them together. If banks are lending deposits, then definitionally, they only have a fraction of those deposits left as reserves.
What am I missing about your hypothetical? What does this non-fractional reserve system look like if lending still exists?
They are making billions where I live and they are setting profit records on a regular basis. They make about $1200 per head of population. I’m in New Zealand.
https://www.newsroom.co.nz/taxing-banks-excessive-profits-be...
Depending on the type of business, cash drops are handled directly by employees on company time, or else handled by a cash transport service such as Brinks.
It's definitely still percentages, not a flat fee, and it's not limited to 0.3 percent which is applicable to you, it's much, much higher even in a debit transaction. This is why some small shops only accepts cash.
For big businesses, PSPs are well under 1% for both debit and credit cards, as long as said cards are issued in the EEA.
With interchange capped at 0.2/0.3 respectively and scheme fees a little over 0.1, PSPs are can be profitable at 0.6~0.7%, a fraction of the situation in other regions, especially the US.
It's absolutely ridiculous, and MasterCard's attempt to destroy girocard by forcing banks to choose one or the other is an obvious cash grab to destroy competition.
I think there’s a similar situation happening in Canada where multiple big banks are adding Visa Debit to their cards (in addition to Interac) and boiling the frog on phasing out the Interac System.
I don't believe MasterCard and Visa are forcing anyone's hand, but they obviously give better deals to card issuers that don't co-brand their card with the domestic payment network. The scheme fee is the smallest part of the overall transaction fee, in the end it's mostly banks that profit from ditching Girocard and the like. These networks cannot survive on their own since people need a payment card that works in neighboring countries.
The EU should really push EPI [2] but I belive the initiative has stalled. Empsa [3] is also promising, but in practice the transaction fees aren't cheaper than using a MasterCard or Visa debit card, at least for now.
1. for instance https://www.stancer.com
MasterCard has banned any and all co-branding with domestic payment networks, starting 2023-01-01. Which is why many banks are now forced to abandon Girocard, or are switching to Visa.
Because that doesn't seem true everywhere, see in France for instance: https://www.fortuneo.fr/compte-bancaire/carte-gold-mastercar...
It's still co-branded CB.
It's been delayed a bit, but MasterCard will not support any co-branded cards after summer 2023.
Maestro is on the way out but that's old news, and already a reality in most of Europe.
That's what the consumer pays; but businesses also have to pay a certain percentage of each transaction (usually 1-2% iirc) made with a creditcard.
There are merchants where the all in costs of cash is more expensive than their equivalent card costs. Those merchants wouldn’t want to give a cash discount, quite the opposite they’d want to give a card discount or prohibit cash transactions (though most would rather have the sale vs not so that is more rare).
This isn't clear to me. Is it for interbank transactions or is this includes intrabank transactions? It's confusing for me since that nearly all banks here have free intra- and interbank withdrawal*. Are US banks really that greedy?
* It may be indirectly charged by lower interest rates, I'm not sure, but there's no direct fees collected.
Edit: wow, US banks are greedy. This is the first time that I've heard about domestic own-bank fees (separate from ATM operators' fees) for inquiring (not even withdrawing) your account. Silver lining is that intrabank transactions are still free, which is okay I guess but but definitely weird for me.
In the U.S. withdrawing at another bank will frequently incur a few twice, once from your institution and once from the disbursing one, unless you are on a product which specifically makes a selling point out of reimbursing you for ATM fees.
This is not simply a matter of “greed”; it is also a policy choice made by society as to who pays for bank services and where. Different equilibria prevail in different places, partly anchored on historical practice and partly in response to the usual factors which shape public policy.
Fair enough, but I was still shocked by it. I know Japan's "checkerboard" ATM schedule, but (except for normal fees charged for withdrawing money from your savings account) I didn't really expect banks to double-charge you for domestic transactions.
DKB and ING Diba require 12€/year for a giro card, and either "aktivstatus" (DKB) or 50€ minimum for free withdrawals.
However ATM withdrawals on a bank different than yours usually has some kind of fee (depending on the bank, I usually pay between €0,60 to €1,50, for debit withdrawals, credit has bank fees for ATM use and a fee for using credit). Usually if you withdraw €200 or more it's free, but that's entirely dependent on your bank.
That network just so happens to encompass every bank operating in the country.
It has an integrated ATM and 1-2 bank employees. Each half day it is at another village/small town.
That said, last time I visited an actual bank branch was like 10 years ago to terminate my account with Sparkasse, have used an online-only one ever since.
Here in France I'm still using cheques to pay for my electricity bills (which not the usual way, I'd wager most people just pay by internet), but I never have to go to the bank for the checkbook, I order it online and receive it by mail within a fortnight.
However selecting credit by the cashier - while using eg a MasterCard branded debit card still gives you the consumer protections (eg when disputing charges the onus is on the bank etc)
Am I completely wrong about this? Is the only difference the payment rail that gets used - and that has no affect on whick consumer protection laws you fall under?
Exactly how long the transaction takes to _clear_ your account may vary depending on the semantics of the network and integration used, but processing a debit card over a credit network doesn't mean you get to hold onto your money for any longer than you would otherwise. The auth will put a hold on the funds in your account instantly and you will effectively have that much less money in your account.
I wonder if financial marketing understands this? Associating credit with less risk, less requirements, in naming of the networks themselves? Even though settlement can occur on each network
But turns out it's pretty difficult to hide the complexity, and many businesses are built around hiding it as a service. It usually involves taking on risks others aren't willing to or having an Apple-like resolve to piss off some customers by deciding what's best for them without asking or, rarely, the power and/or innovation to actually change how things are done.
It sounds like your bank has made the decision to eat the small liability as a customer value add.
One of the reasons why people are often wrong about CC being safer than debit is because many banks will also make you whole the next day after reporting fraud rather than waiting for it to process before returning the funds. They're not legally required to do this, but neither are credit card companies, both are doing it to gain customers.
The thing that is materially different are brand rules, because Visa/Mastercard/etc are effectively their own legal systems. They can, and do, require issuers to do certainly things vis customers and dispute resolution that go above what the law strictly requires. Those requirements may be more customer-friendly than what the debit network saddled the bank with, as debit networks have less of a brand to protect and less power over issuers.
(Speaking strictly for myself and on the basis of things I have believed for a long time: unless you need cash back, customers should choose credit ~every time.)
When you transact with a foreign credit/debit card at a POS or ATM in the US, you are also routinely asked if you want to proceed as a credit or debit transaction. I never know what to choose and if it actually makes a difference.
If your foreign card is a Visa or MasterCard you should have to choose credit for your transaction to go through. In this case you still have the same chargeback rights as you would have for a transaction at home, but that might not be any (nb: even if chargebacks aren't a thing in your home country the brand rules on them still apply. Some banks will do one if you ask them nicely.)
If it's a Maestro card you should probably try credit first, but I'm not sure.
If it's a VPay card you're relying on pure luck anyway.
IANAL etc.
I don't know if it's a cultural difference, but at least here in Brazil, it's common to have the same physical card work as debit, credit, and as an ATM card. AFAIK, they are different applications running in the same chip on the card, selected by a command from the terminal. So they really have to ask "debit or credit", since the same card can be used for both.
This is true in the US as well, but most US debit cards have a Visa/Mastercard logo on them. Those cards can run the transaction either through the debit system or the credit system. It's not actually a combined credit/debit card (at least I've never heard of such a thing), just that your debit card can pretend to be a credit card.
In the US, though, both options draw from the same bank/checking account.
Same in Italy, at least recently, a few years.
https://ptabdata.blob.core.windows.net/files/2017/CBM2017-00...
This was many years back, I wonder if it's still possible.
1. My bank ditched physical locations (for the most part) and now just covers the cost of using other banks' ATMs.
2. The overhead these banks have for just talking to eachother is understandable when you read about the intricacies of why it exists, but something that really shouldn't exist today.
With ATMs as a concrete example, you don't just need a rest API connecting the ATM to the issuing bank. The transaction also involves multiple risk transfers, mandated-by-regulation accountability if something goes wrong (including SLAs for resolution with effectively mechanical penalties for breach, in many cases), 24/7 staffed customer support that answers questions like "I am in New Orleans and a machine just ate my card heeeeeeeeelp!", etc.
Now we, as a society, could decide "You know I like a US- or Japan-style penetration of ATMs in society placed by a combination of banks and independent entrepreneurs, but I hate that they actually cost money to end consumers. We should shift the cost of them to... OK I care about the specific payer far less, actually. Let's write a law to do that." Some societies have chosen that.
It’s fun to know what the actual difference is though. I had always just assumed that if I select credit when using a debit card the transaction would just fail “silly customer we know, you told us to check the wrong vault”.
Debit networks (oversimplification) are basically ATM networks where your bank gets a note saying “user” supplied their card and pin to authorize a withdrawal of $X. This is why you can also pull out extra cash on these transactions. Banks ofc want to be reimbursed for the onerous task of giving you your own money, so they usually charge a consumer-facing fee for these transactions.
Credit (really Visa/Mastercard) transactions tell the bank “user” gave us their card and a signature, our fraud algorithms tell us this is probably fine, and we’ll settle this payment in bulk with the rest of your users’ purchases in 1-3 days. Banks, again wanting their cut, are paid via merchant-facing fees (interchange and merchant discount rate).
Stores keep the debit option up because some people like to draw extra cash and they get the benefit of not paying the fee even though their prices already incorporate the cost of credit card processing.
That is also why all the “financial advice” sites say to run things as credit, but honestly I’m not sure how current the above is given recent regulations.
That's not yet the case everywhere. In Germany, girocard (a federated debit system, run by merchants and banks together, with basically no fees) is so common that prices do not include credit card fees.
Now MasterCard is forcing banks to stop issuing girocards or MasterCard will stop working with those banks, in turn trying to destroy girocard. But this means prices for everything will jump another 1-2% to account for the new fees which are added by switching to the MasterCard network.
I'm serious, you can even do the math from Visa's disclosures - they make $30bn of revenue on $10tn of transactions (i.e. 0.3%).
The reason Mastercard and Visa exist (I'm serious, both used to be wholly owned by the banks) is to have a fall guy so that banks can blame someone else when they want more of the transaction settlement pie.
Do not assume German banks are somehow "the good guys" unless interchange and merchant discount rates don't go up, because there's nothing about Visa or Mastercard that forces them to take the interchange (in fact, one of the weirdest parts of the US is that wealthy customers just get that interchange given back to them).
But the lions share of fees you talk about would go to those same banks, so I’m just saying Mastercard maybe isn’t the villain you think they are (I feel like I’m just restating my earlier comment?)
Debit cards often have per-transaction fees. However it is becoming quite common to have a very generous free allowance or even be completely free to the consumer.
Credit cards almost never have a per-transaction fee but may have monthly fees. That also usually have some sort of rewards program that give 1-3% of purchases back to the card holder.
So in general debit cards are low cost and becoming more universally free while credit cards pay you to use them.
Free credit cards a bountiful and my estimation is that the vast majority of people using a credit card with a (usually annual) fee are doing so because they have done at least some math to convince themselves that the benefits (usually cashback or airline miles) will outweigh the fee for their specific usage.
In some localities, it is common for businesses to charge a fee for using plastic, but these days it's pretty much never tied to debit/credit anymore.
Or ISA buss triple width 3DES cards with a funky fully potted encased circuit to do SuPeR SeKrEt CrYpTo over the wire
The protocol got a new minimal, mini-call model which didn't expect more than one packet each way to take account of it.
https://www.bitsaboutmoney.com/archive/moving-money-internat...
Generally, ISO have bank sponsors. They can operate ATMs. More often, they service distributors. Distributors are typically local businesses serving a market; they may operate ATMs. They also can just sell the ATM and the merchant can operate it. The ISO and sponsor banks typically is where the processing agreement/negotiations is actually happening. The ISO is typically the highest level anyone will ever interact with on the downstream side (it's the top of the pyramid in the MLM example). Everyone down stream gets a payment portal specific to their function. An operator can be anyone, they service the machine and keep it stocked with inventory (cash) and typically keep the surcharge (less than 100% is a bad deal, renegotiate.)
What's interesting is the ISO gets its hands on some interchange. Then it gets passed around as negotiated. Most people in the industry don't talk about this, but it's usually their revenue since the operator is getting the surcharge. But, even as an operator of a single ATM, you can ask for a cut of the interchange pie. Like all things, it varies but with volume you have leverage to negotiate a bigger slice.
It's similar to how as a consumer there are no line items for you to see, but there is interchange when you make a credit transactions. You bank is being paid by the merchant's bank to facilitate the transaction. If your card/bank chooses, they can share that interchange with you. It's purely marketing as to whether they will or not (it's a product feature).
It's possible as a merchant operator your transaction economics would look like:
Cash Reimbursement + 100% Surcharge + Cut of Interchange (amount varies, but I was averaging ~$0.50 per transaction)
> Note that the settlement of these deals is necessarily much slower than the transaction itself is. The ATM network will often be paid the following business day by your bank, but the ATM operator will probably be paid several days later by the ATM network, using an ACH transfer (in the US) or similar frequently slow rails.
ATM operators should be getting the money quickly. It works next-day on the schedule of the ACH system. IIRC the cutoff is 4pm ET and it's next business day. Any operator not getting this is probably stuck on some 25+ year old agreement and probably should switch providers; renegotiate at a minimum if it's even worth the hassle.
Wise does offer the ability to switch your balance from Cash (safeguarded, no interest) to Interest (government-backed assets) or Stocks (index fund) while still having access to spend it. This might be gated by currency or by the country of your verified address.
Accepting them in a sane payment system is a bit of a nightmare however.
I say was because it’s currently broken apparently, as they switched payment providers to one that requires 3D Secure in an way Apple Pay can’t do.
-ATMs were originally introduced to banks as a cost-saving device, allowing for routine transactions such as cash withdrawals and balance inquiries to be handled by machines rather than tellers, freeing up tellers to handle more complex transactions.
-The basic transaction at an ATM can be seen as not a withdrawal, but rather a sale of paper with mystical properties (cash) in exchange for money, often with a convenience fee.
-Transactions at ATMs require real-time confirmation of availability of funds and cannot use the same "rails" as other transactions in the economy, making them vulnerable to fraud.
-Using an ATM owned by the same bank as the account being accessed is straightforward, but using a different bank's ATM requires more infrastructure and relationships to ensure smooth and secure transactions.
-"Off-premise" ATMs, owned and operated by non-bank entities, became popular in the 1990s, charging a fixed convenience fee for cash withdrawals.
-Interbank networks, such as Cirrus, were created to streamline relationships between ATM operators and multiple banks, increasing the reach of any ATM bearing the network's logo and allowing for smooth transactions between different banks.
-ATM transactions involve a series of offsetting deals between the customer's bank, the ATM operator, and the interbank network, with settlement occurring later.
-The expansion of interbank networks and increased use of off-premise ATMs led to the creation of independent ATM deployers (IADs), who manage the placement and maintenance of ATMs for a fee, rather than owning and operating the machines themselves.
-Offering cash back when using a debit card at a store allows the store to save on banking fees for depositing cash and potentially earn float.
-Big Data has been used to optimize ATM demand for cash and minimize servicing trips.
-The use of cashless transactions is on the rise, but there are still challenges to overcome such as lack of internet connectivity and cultural differences in adoption of new technology.
-The future of ATMs is uncertain, with potential competition from mobile banking and the rise of digital currencies.