If competition regulators spent some time coming to grips with the economics of the ATM market, they would find an industry devoid of real price competition.

The Australian ATM market became overcrowded in the last decade as non-bank providers set up networks to compete against the banks.

But the entry of new players has achieved little in reducing the cost of using automated teller services.

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There are currently 30,544 ATM machines in Australia, up more than 7000 on the 23,472 machines that were registered in 2005.

While the increase in the number of service providers might lead one to think that fees incurred by consumers would have reduced, the movement has actually been in the opposite direction.

The banks responded to the new competition by adding more ATMs to their networks and closing branches.

During the same period, the fee slapped on customers for using another bank’s ATM to make withdrawals rose from around $1 to $2, and even higher for using a Suncorp machine.

According to the Reserve Bank, the average cost to the major banks of allowing a rival’s customer to withdraw from their ATM is around 77 cents.

With the fees on such transactions now averaging $2 and ranging as high as $3.50, the profit margins exceed 100 per cent.

An example of market failure

The ATM market is a case-study in market failure because the fee structure is not reflective of price competition.

Labor Senator Sam Dastyari says ATM fees are too high.

Banks seem to take a proprietary attitude to the ATM system and actively work to undermine competitive threats.

The major banks expanded their ATMs networks primarily to prevent recent entrants from growing their market share.

They did this knowing that the demand for ATMs was not keeping pace with the supply of machines coming into the market because the use of automatic tellers has been losing ground to EFTPOS and online banking.

Australians withdraw around $11.5 billion each month from ATMs, which is in line with 10 years ago.

In other words, the major banks’ are continuing to expand the ATM network to stymie the profitability of smaller players.

And to ensure that these negative strategies do not erode their killer profit margins, they have imposed higher fees on customers of other banks to use their ATMs.

The Australian Competition and Consumer Commission shouldn’t wait for the findings of a Senate inquiry to investigate.

The statistical evidence of price gouging is already in the public domain.

How to avoid ATM fees

While Canberra mulls over what it might do to rein in industry rorts on ATM transactions, consumers should consider ways to avoid paying these unjust fees.

ATMs provide profit margins of more than 100 per cent.

The banks rake in about $600 million for charging customers of other banks for using their ATMs.

RBA data shows that 40 per cent of the 58.6 million ATM withdrawals recorded in April this year were made by customers not using their own bank’s machines.

Not all of these transactions attracted the controversial fee because some banks negotiate special arrangements to have the charge waived for their customers.

Here’s a list of those arrangements:

– CBA customers can use all Bankwest ATMs at 7-Eleven stores.

– NAB account holders have fee-free access to Rediteller network ATMs.

– Westpac customers pay no fees at St George, Bank of Melbourne and Bank SA ATMs.

– Bendigo and Suncorp customers can use either bank’s ATMs without incurring an operator fee.

– ME Bank customers have free access to Westpac, St George and Bank of Melbourne ATMs.

According to financial services comparison site Canstar.com.au, customers with transaction accounts at the following institutions can avoid all ATM fees if they meet certain conditions:

– ING Direct will rebate all ATM fees to customers who deposit a minimum $1000 into their transaction accounts each month.

– BankVic Ezepay transaction account holders get free access to any ATM for withdrawals over $100.

– Bankwest’s Easy Transaction account has no ATM fees for machines owned by Bankwest, CBA, NAB, ANZ, Westpac, St George Bank, Bank of Melbourne and Bank of SA. This account does not pay interest.