Monday, January 13, 2003

Introduction of fees for ATM-service: a deadlock prisoners' dilemma

Leo van Hove has today pointed out to me that in December 2002, Austria has experienced what is about to become the next new phenomenon in retail payments. I would label this the deadlock-prisoner's dilemma. A brief summary of what has happened, with links to the original Austrian newspaper (in German):

-One bank started the introduction of fees for getting cash at the ATM machine and pointed out that this move was necessary due to the EU-regulation that stipulates equal prices for the same payment service, regardless of its location (domestic or not),

-There was a lot of resistance from the consumer protectors at the labour union, with the threat of a complaint at the competition authority,

-The bank withdrew its pricing plan.

If we look at this situation from a game-theoretic point of view we see a prisoners' dilemma. All banks individually can do the calculation that introduction of this fee is beneficial and necessary from a business point of view. Even from a more broad perspective (efficient allocation of cost/benefits of cash) the introduction of the fee will benefit society. Yet, being the first to introduce the fee will be detrimental to the image of the first mover. So all banks sit back and wait; thus ending up with a more costly situation.

The theoretical solution for this dillemma is coordination; by moving together and cooperating, the banks can end up in the optimal game situation from the viewpoint of all players. Yet, this optimum cannot be attained due to regulatory constraints (anti-competition rules). And apparently neither the central bank nor the Ministry of Finance have stepped in to overcome these constraints.

In the Netherlands we have also witnessed a similar situation; yet it occured at the end of June, 2002. Due to a complex interaction between reporters adn bank spokesmen, banks called of the planned introduction of ATM-fees (not many consumers where aware of this fact as it occured largely behind closed doors). And they are now still deliberating how to resolve the current situation: which I would call: deadlock-prisoner's dilemma

Will this be the end ?

Well, a poll at the Standard's website reveals that 72,2 % of the readers believe the fees will somehow, sometime be introduced, with only 20,9 % that think it is the end of the discussion. The remaining 6,9 % has no opinion.

And as for the Netherlands, we've seen a more general further introduction of fees in both the consumer and business segments of the market. Most probably banks will seek to recoup expenses through indirect fees rather than direct fees.