36. ATMs | The Economics of Everyday Things

Key Takeaway

Before withdrawing cash, pause and calculate the all-in cost: an out-of-network ATM can charge both an operator fee and a bank fee, turning a $20 withdrawal into a $5-$6 expense. Today, identify your bank’s in-network ATMs, save the closest locations in your maps app, and carry a small emergency cash buffer. This simple default protects you from convenience fees when you are at cash-only bars, restaurants, or stores.

Episode Overview

This episode examines how ATMs evolved from clunky bank-branch machines into a vast network of independently operated cash dispensers. John Wild Baker of New York ATM explains the economics behind surcharge fees, commissions, cash loading, theft, and why cash demand remains strong in particular types of local businesses despite a broader shift toward digital payments.

Full Transcript

Transcript of 36. ATMs | The Economics of Everyday Things from Freakonomics Radio. Auto-generated from episode audio; may contain minor errors.

imagine that you're out at a dive bar on a Saturday night you order a drink and take out your credit card and the bartender she tells you they only take cash and because you're living in the 21st century you don't have any cash in your wallet just as you're about to go gravel to your friends the bartender points to a dimly lit corner where you see your salvation it's an ATM ATM stands for automated teller machine the name is a reminder that long ago people used to have to get their cash from a human teller at a bank branch today there are around half a million ATMs in the US and most of them are those little Standalone models that you find at nail salons corner stores and bars they're owned and managed not by Banks but by individual operators who earn a living off the sear charges that you have to pay to withdraw money and anyone can get into the trade it's not regulated you don't need a license you just go out and buy one of these ATMs and you know find a spot at a barber shop and uh you're in business for the free economics radio network this is the economics of everyday things I'm Zachary Crockett today ATMs America's very first bank opened its doors in 1782 and for the next 180 years or so pretty much anything you did involving a bank happened inside of a branch if you wanted to check your balance make a deposit or withdraw some cash you'd Mosey on in and talk to someone behind the desk but by the 1950s this labor intensive model was no longer a good fit with the way Americans were living you see this move to the suburbs and moving away from City centers so reaching out to these people with the Old Branch model was expensive that's Bernardo batis Lazo he's a professor at North Umbria University in the UK and he studies the history of financial technology he says that at the same time that people were moving away from the city centers the economy was booming which meant the banks were getting a lot of new customers and they started having trouble serving them all who were they broadly speaking Working Class People who are getting into manufacturing and another big group of people were women this is a little bit of the context of what is going on within Banks and thinking how they're going to reshuffle their business banks in other countries were also facing challenges in Europe tellers were unionizing customers wanted to get their money on weekends when Banks were required by law to close a crazy idea started to percolate in the banking industry why not replace the bank teller with a machine that Vision first became a reality in 1967 when a bank in London introduced the First ATM 2 years later Chemical Bank brought the idea to the US with a machine in Rockville Center Long Island those early machines were a far cry from the ATMs you see at Banks today they were activated with tokens rather than cards they jammed easily they sometimes dispensed the wrong amount of money and they were just weird looking the first devices were very silly almost you can think of a science fiction movie of the 1950s where you have literally lights and switches they are really clunky to use and it takes about about 15 years for the devices to be really working on a regular basis over the next two decades technological improvements transformed the ATM from a rare gimmick into a ubiquitous utility the machines got video display screens better cash dispensing mechanisms and a lot more functionality like the ability to check your balance or move money from one account to another at first ATMs had to be connected to a dedicated phone line which meant that they could only be built at Bank branches or other places with the right infrastructure but in the late 80s ATMs shifted to digital telef and Windows operating systems which enabled much more powerful networking you could access your money through any ATM not just the ones associated with your bank at the same time all of this was happening cheaper portable ATMs became available for the first time a machine that typically cost a bank upwards of $15,000 could now be had in smaller and simpler form for around 2,000 bucks this opened up a whole new market for independent ATM operators yeah we were Pat we did some crazy sh back then you know Pat was bringing home $100,000 on the subway and i' put the brick of cash in a backpack and I would go load these machines like somewhere in Midtown yeah I think growing up I really thought it was normal that's John wild Baker his wife Pat tuzz and their daughter Sasha together they run a family firm called New York ATM it's one of hundreds of companies in the US that own a fleet of ATMs the kind you see in the corner at the bar these independent operators run the gamut from 18-year-old kids who just own one machine up to cardtronics a publicly traded company that owns and operates more than1 ,000 ATMs by contrast Bank of America only has around 16,000 once only an offering at Major Banks ATMs have been democratized wild Baker and TZ were among the earliest entrance into this business back in the late 90s at the time they were both working in advertising in Manhattan one of wild Baker's clients was Chase Bank when I saw that a Chase was closing across the street from our house I figured out how to put an ATM in the drugstore next door I asked Ivan the pharmacist you know Ivan you want to put an ATM in here and he said uh I'd like you to do it we put an ATM in his drugstore and it took off like crazy the larger ATM companies like cardtronics had a near Monopoly on putting machines at Major retailers like CVS so wild Baker went after small businesses with high foot traffic in areas where Banks didn't have local branches restaurants delies 24/7 gas stations no location was off limits my dad also had the ATM at my high school yes another embarrassing location for me today New York ATM oversees 1,500 cash machines in New York and surrounding states we'll do a what we call a full service placement we'll put an ATM in a grocery store we buy the ATM we load the cash and then we pay rent or per transaction fee to the owner of that grocery store now if the owner of the grocery store wants to load his own cash we will also sell him an ATM and handle just tech service support and processing when you think about the SE charges you have to pay to use that ATM owning 1500 ATMs might sound like a pretty good gig and it is but it's also a job that involves staving off thieves fishing rodents out of machines and finding customers in an increasingly cashless economy that's coming up when you put your card in that ATM at the bar and request a $20 withdrawal there's a computer inside the machine connected to the internet this computer routes your request to a processor that processor then sends it to an ATM Network that is associated with your bank when your bank receives the request it debits your account and sends the transaction data back across the network the ATM operator's account gets credited and the Machine spits out your money after more than 20 years in the ATM business John wild Baker still Marvels at the process all that backend takes place now in about 30 seconds and it's just amazing that it can do that you know millions of transactions every day and you can't make any mistakes but this transaction it doesn't come for free independent ATMs charge you a fee for the privilege of using the machine usually around $2 to $3 many banks also charge you a $2 to $3 fee on their end for using an ATM outside of their Network so getting that $20 bill out of the ATM might cost you5 or $6 most of wild Baker ATMs charge around $2.50 he finds that anything higher than that tends to piss people off it's whatever the market will bear basically people just are not tolerant you know they get crazy start screaming I don't want to pay to take out my own money why am I paying to take out my own money I'm sorry but I'm not doing this for free you know in some venues operators can get away with charging much higher fees uh highest fee that I personally know about is a legal brothel in Nevada which is $100 a lot of the strip clubs now are 10% so you take out $800 you're going to pay $80 for your fee depending on how you look at it ATM fees are either exploitative or part of a necessary Lifeline independent ATMs tend to be located in underbanked neighborhoods and the people who use them are disproportionately lower income and unemployed but wild Baker says he's not the one collecting The Lion Share of the money many ATM operators have to pay commission to the bar or convenience store that can be anywhere from 20 to 50% of the search charge while Baker also gives a cut to a thirdparty service that provides the cash and reloads the machines each week so the customer comes in he puts his card in the machine machine he pays $2.50 to the ATM operator which is me and then I divide that 250 up a125 to the store 75 cents to my cash loader and I keep 50 cents that 50 cents comes from the customer wild Baker also gets around 20 cents from the bank that the money gets withdrawn from that's called an interchange fee as you can imagine from those numbers earning any real money in the ATM business is a game of volume70 cents or so on a single transaction isn't too exciting but across 1,500 machines with hundreds of thousands of transactions a month it adds up we're looking to make between $100 and $200 per month per machine that's our goal less than $100 you want to kind of move it if you can over $200 you know know it's a keeper our single busiest location is in City Island the Bronx it's a cash only restaurant it's a large restaurant but there's no bank there's no other ATM within a quarter mile probably of that location so we have four machines at that one restaurant how many transactions happen at that restaurant every month it's about six to 7,000 a month give or take that's around $4500 a month for one restaurant of course ATM operators have other costs that they have to cover for starters the machines themselves most Standalone ATMs are made by two Korean companies hosung and gen Mega and the cheapest models go for around $2,300 new you can also go on Craigslist eBay or an ATM Facebook group and find a used machine for sale for a fraction of the price they're fairly inexpensive it's basically it's just a couple computer boards and a modem and a cash dispenser you also have to have access to a lot of cash bricks and Bricks of the stuff you could put a lot of money in a small machine there's different size cassettes that you can buy depending on how much capacity you want the smallest one holds 16,20 there's a two cassette machine that holds 80,000 at Saratoga Racetrack we have 20 of those machines and the cassettes are set for hundreds and 20s so each machine has about A4 million dollars in it some smaller operators choose to use their own cash and load their own machines New York ATM now outsources this job to a third party for 75 cents per transaction for some machines they use cash from a bank sponsor which means paying for an armored car and an armed guard to transport it across the city that service runs wild Baker around $135 per transaction and it comes with an additional cost I'm required to have insurance on those locations and in the last 3 years we filed three claims and all three of those were from fires where the store burned down and the ATM burned down with the store theft is another big risk sometimes robbers will roll up to a store throw the entire machine into a truck and drive away other times they'll use explosives or hand tools to crack it open on site many of these attempts are are ill- faded but when they work out the hall can be sizable the gangs that are stealing them they know what they're doing and it's very easy to crack open there's amazing tools out there now you could buy at Home Depot that you can open anything they're stealing 50 60 70 machines you know over the course of a couple months robbing an ATM at a bank is a felony you could face up to a $250,000 fine and a 20-year Federal Prison sentence but robbing a privately owned ATM with non-bank money isn't treated nearly as seriously in some municipalities it's just a property crime if somebody stole one of my ATMs and I called up the cops they don't really even care anymore and unfortunately robbers aren't the only creatures breaking into ATMs well the mice yeah the rodent issue is not much fun what happens is insects and mice and rats are attracted to the inside of ATMs because they're dark and warm and then somebody comes up and wants to use the ATM and the belts trap the rat and the thing dies in there so it's not a pretty picture I don't I don't do that she sends me on those cases in recent years ATMs have become a PO popular side hustle for younger folks on YouTube and Tik Tok there are countless ATM evangelists who promise to make you rich in these videos you rarely hear about the thieves and the dead rats it's just a lot of people holding up fat stacks of cash and trying to get you to buy their courses wild Baker enjoys the enthusiasm for a business that hasn't always felt particularly sexy but he also says it's hard to break into today it was a lot easier when we we started you know when that First ATM at Ivan Pharmacy when that Bank closed next door that went to a, transactions in one month you know today these kids are finding locations that do 10050 maybe 50 you know it's terrible you don't just find a thousand transaction spot anymore most of the good locations are already taken either by a regional operator like New York ATM or a national Giant like cardtronics and there's a bigger threat that looms over the business the shift to a cashless economy according to a recent Pew survey 41% of Americans now say they don't use cash in a typical week that's up from 24% less than a decade ago many banks are closing physical branches and reducing their fleets of on-site ATMs independent ATM operators have even experimented with reverse ATMs you put your cash into the machine and it gives you a preloaded card these haven't quite caught on yet but while Baker thinks the threats that ATMs face are a little overblown some states still have laws preventing businesses from going cashless he says the nature of the trade has just shifted in the 20 something years that we've been in the business all the people say oh we're going cash you know we're going to a cashless economy you know ATMs are dead this and that our transaction volume is exactly the same today across all our Fleet than it was 10 years ago it's just the type of stores that are busy today or different or there a different mix of stores than it was 10 or 15 years ago a nice hotel does 100 transactions a month now that used to do a th000 but the corner Bodega in Brooklyn did a th000 10 years ago and it does a thousand today for the economics of everyday things I'm Zachary Crockett this episode was produced by Sarah Lily and mixed by Jeremy Johnston we had help from Daniel Mor rapson Sasha will tell you you know when she was growing up she was so confused because I would come home and there'd be $200,000 on cash on the dining room table and I'd be yelling that you know we were broke yeah I grew up with major class confusion the Freakonomics radio network the Hidden Side of Everything Stitcher