Of late, bank customers in the country have had cause to smile on their way to the banks. Courtesy of recent central bank directives to the banks, they are being spared a couple of additional charges on their transactions. Having gently been shunted away from main branches into ATM sidings, most bank customers had laboured under the weight of the N100 charge per ATM transaction, which they had to pay each time they used their cards outside the issuing bank’s ATM network. This of course led to the unusual spectacle of traffic building up at some banks’ outlets even when neighboring branches of other banks had few patrons by their own automated teller facilities. Moreover, there was the small bother of at least one additional step (confirming one’s agreement with the “not on us” bill) in the near countless process of extracting one’s money from the ATM.
ATM charges were always counter-intuitive. Without really discussing it, banks’ retail patrons seem to have agreed with the financial services industry’s definition of its main challenges: to decongest its brick-and-mortar facilities by transferring custom to ATMs; and leveraging the ease of use and convenience of access to these ATMs to drive growth in the number of adult Nigerians who use the formal financial services sector (financial inclusion). The persistence of the mirror causes of these two challenges (a preference for human interfaces during commercial transactions on one hand, and a loathing of the lengthy procedures associated with formal banking services, on the other) have always been described in terms of the relative poverty of the larger number of Nigerians.
It made little sense then for banks to charge as much as N100 per transaction on their ATMs if they hoped to get (relatively poor) people to use them (more). Or does it? Given generally acknowledged problems with the country, it has cost banks a fortune to put their ATM infrastructure in place. Security has had to be reinforced in locations where ATMs have been deployed; and additional security arrangements made to protect staff who support the ATMs outside normal banking hours. Every ATM runs on an inverter, in order that they may be accessed all day long. Indeed such is the size of the amounts involved that a number of Nigerian banks chose not to deploy ATMs at all; preferring instead to piggy-back on others’ investments in this regard. For this set of banks, it was considered cheaper to pay the N100 “not on us” charge than to build their own ATM network. Yet, N60 of this “not on us” charge was (and is still) owed to the switching companies whose investment in a different set of infrastructure lets banks talk to each other, and their customers withdraw money from any ATM in the country.
What then is the (arguably unintended consequence) of the central bank’s directive to banks to stop charging for ATM cash dispense? At first blush, we confront here a bad example of a regulator interfering with the price mechanism, without first establishing a failure of the markets to do this job better. Beyond this, however, the apex bank appears to reward (by this directive) those banks that chose not to invest in building new infrastructure. This is off-the-wall, given the squalid state of domestic infrastructure generally. Second (which is really a different way of putting the problem), it forces banks with an ATM network to re-appraise their rollout strategy. Banks are not set up as charities (Finances Sans Frontières), and as with most businesses will only invest where profits are to be made.
Profits, incidentally, are a function not simply of the prices that producers/service providers charge on their products/services. They reflect, as well, the cost of producing/providing these products and services. Complaints about high prices must necessarily be addressed against a proper understanding of the cost structures of the respective industries. And we all agree that the cost of doing business in this country (with entrepreneurs having to build their own infrastructure from the ground up) is prohibitive. “Profit” on the other hand, is the return that an investor expects for not immediately spending his savings. If this return is less than his/her perception of the gains from immediately using up income as it is earned, s/he will not save. If it is less than s/he can make from investing elsewhere, the average investor will re-balance his/her portfolio into more rewarding sectors of the economy (or, even outside it).
We may not like it, but this is how it (should)work. More than any of us the Central Bank of Nigeria should know this, and structure its regulation accordingly.