Well you certainly shed some light on the banking industry’s bufoonery. I think I read somewhere that these ATM transactions are becoming a major income line item for them, though, exactly because of the phenomenomial yields involved. I believe the city of San Bernadino city council has banned the ATM fees, but the banking industry is taking them to court over it. Anyway, like I said in the original post- it’s just food for thought. And I hope I put the numbers in the HP 12C correctly.
I was just playing with my financial calculator, working rates of return on invested capital, and came to this conclusion.
On a typical ATM transaction, it costs the bank about 50 cents to process a transaction. (Got this info from a consumer protection website dedicated to the abolishment of ATM fees. Put “outrageous ATM fees” in your web search engine to verify)
The average charge to customers is $1.75 per ATM withdrawl. (same site)
Using my trusty HP 12C, I figured the following:
N=1 PMT=1.75 PV=.5 I=?
Answer: I=250% per DAY (the transaction closes the same day, right?)
Multiply this by 365 (didn’t add the leap year) and VIOLA!
91,250% annualized return on investment.
Please, somebody tell me if I’ve messed up these numbers.
Wonder if I can structure notes like that? Food for thought anyway…
Happy Investing!
Disclaimer: This is NOT an anti-bank or anti-ATM message. I was just wondering what the average ROI was for the typical ATM transaction.
I am in the ATM financing industry and the full surcharge does not all go to the bank (at least not for non-bank ATM’s, such as in convenience stores, gas stations, etc.). Using your example, for a $1.75 surcharge, the location where the ATM is usually gets part of that fee and then there are processing charges, so part of the surcharge goes to the company that processes the ATM transactions, then there are costs associated with putting money into the ATM machine. Most places actually ‘lease’ the money, paying interest on the amount put into the machine on a weekly/bi-weekly basis. Finally, there may be residual fee income to the salesperson who sold the ATM to the location. So at the end of the day, the bank may not be making much more than 10 to 20 cents per transaction.
Regardless, the ATM market is a good market for residual income for investors. It exploded 5 years ago, and now there are ATM machines all over the place, but still good surcharge fees out there to be shared.
Don’t forget, for every transaction where they succeed in making money, there is an equal and opposite transaction where they lose their shirt doing something so obviously stupid, you wonder how they stay in business in the first place. Like when they get greedy and forget that mobile homes in parks DEPRECIATE every year! Yet many lenders collateralized these long term, low down payment, high interest loans against these depreciating assets thinking all the while “People NEVER walk away form their homes!?”. Oh, and don’t forget, they did all this to attract the low credit score buyer, so the buyer will not know they are being used for their cash flow. But, little did the lenders know or even susspect that these low credit score people have no problem handing the keys to their homes and walking away after they realise they have been paying $300/month for 5 years against a $30,000, 30 year loan, and they still OWE $29,775.26. And lest we forget, after 5 years, the home is only worth about $15,000. Quite a business those lenders have carved out for themselves, don’t you think?
OK, there have been a few pieces left out here and for some reason I feel obligated to fill in the Blanks.
All of the expenses listed in the previous post are mostly accurate, however, there is more revenue being generated than the surcharge. Ever wonder why your bank charges you when you use another banks ATM? It’s because they get charged about 60-70 cents. Not only for withdrawals but they also get charged a lesser fee for Balance Inquiries and Transfers. A portion of that gets passed to the ATM owner which is about another 45-50 cents.
So now we have the surcharge+interchange fee which makes this a very attractive busniess. But, once again the ROI is driven by LOCATION, LOCATION, LOCATION. And to get those locations you have to pay.
Anyway, it seemed that everyone was missing the extra 50 cents per transaction. Oh yeah, they get about 25 cents for the Balance Inquiry and Transfer also.
As far as ISDN lines are concerned: Not needed. These machines have been capable of dial up for quite a while now.
Now why in the world did I just go through all of that. It’s been a long day so far without the phone ringing.