ATM fees have been in the news lately. Where the consumer really does choose straight up between the ATM transaction and the teller interface — at the bank’s own branch — the ATM operates for free (and, typically, more quickly and pleasantly). So the ‘ripoff’ is literally somewhere else — between a bank teller and a remote ATM location. But now the situation is complicated, not least of all by the fact that keeping ready cash in convenient remote locations is both costly to the bank and valuable to customers.

The Reserve Bank of India (RBI) has said that cap on ATM withdrawals will encourage cashless economy as the common man will need to use Internet banking, debit/credit cards and mobile apps to complete their transactions. But using cashless economy to justify charges on ATM withdrawal and terming it as ‘public interest’ policy is a bit too harsh for the common man. The various costs associated with providing fast cash are surely irrelevant — not from the point of view of the banks, but from the point of view of public policy — and invoking them to justify fees only opens the door to calls to justify other prices in the same way.

Explaining prices is a fine way for economists to spend their time, and no doubt keeps them out of any amount of trouble. But justifying a producer’s right to charge a particular consumer price by invoking the costs involved is problematical. It lends credence to the idea that the cost of consumer goods is set by the cost of producing them. Imagine a builder coming to bid on some new construction you wish to undertake. Yes, he says, his price is much higher than that of his competitors — but this high price is justified, because his carpenters have very little experience, and therefore waste a lot of wood.

It is not worth to ponder on what prices ought to be. Everybody is pleased if the prices of things he wants to buy drop and the prices of the things he wants to sell rise. Attempts to justify a market price on the basis of costs will only lead to endless wrangling over what the costs “really” are. Any price determined on a market is the necessary outgrowth of the interplay of the forces operating that is, demand and supply. Whatever the market situation which generated this price may be, with regard to it the price is adequate, genuine, and real. The market regulators have to be vigilant to prevent any cartelization or foul play to influence the market and its operating forces.


  1. Yes, RBI must regulate the charges although it’s agreed that the banks have to recover the cost of providing services through fees and commissions. But, cartelisation to make more profits should not be allowed.

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