By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

Yesterday’s Wall Street Journal featured an article discussing how banks are clamping down on independent ATMs, Gas-Station ATMs Are a Banking Battleground.

It caught my attention, because I live in a Brooklyn neighborhood that’s underbanked, with the nearest Citibank a 45-minute roundtrip walk away.

Now, pre-pandemic, I rarely used an independent ATM, as I hate being gouged with unnecessary bank fees. These would certainly be levied if I grabbed cash at a nearby bodega, bakery, or supermarket, paying both my bank for using a non -bank ATM, plus the ATM owner. Prior to the pandemic, I used to ride the subway often and would just make sure I picked up some cash when I passed a Citibank ATM. But now, I eschew trips that require a subway trip, in favor of local businesses that deliver or hold goods for pick up, or are close enough that I can walk and dash quickly inside

Over to the Journal:

Dozens of banks had rejected Ann Marie and Dan Ellis when they opened Bank of AmericaCorp. BAC -0.24% checking accounts last February to fund their southern Arizona network of automated teller machines.

In April, the bank closed the accounts. Their money—used to fund around $450,000 in weekly customer withdrawals—was frozen. Branch managers told them to call the bank’s risk and fraud department.

Banks are cutting off small-business owners who run the independent ATMs found in America’s gas stations, bars and bodegas. ATM operators say it is getting harder to find a bank willing to hold the funds needed to keep their machines stocked with cash. The banks that will work with them, ATM operators say, are jacking up their fees.

For banks, it is a simple matter of risk. The sole product of ATMs is cash, which can make them a convenient way for criminals to launder the proceeds of their illegal activities. A bank that does business with unscrupulous ATM owners could face the wrath of regulators for violating anti-money-laundering rules.

Jerri-Lynn here. Is it really risk alone that’s motivating bank decisions? Or are banks taking these actions because they can? After all, he reasons a bank might do so seem obvious: to force customers to use the banks own ATM network, or to increase pressures to use bank credit cards and payment apps, with the charges for using those services going to banks instead of independent ATMs. More on this point in a moment.

Per the WSJ:

Legitimate businesses—and their customers—get caught in the middle. Independent ATMs serve as a lifeline to people in areas where traditional banks have retrenched. An estimated $90 billion was withdrawn from the roughly 225,000 nonbank ATMs in the US in 2020, according to the latest data from research and consulting firm RBR.

“Basically, our ATM is their bank,” said Ms. Ellis, who, with her husband, built a network of around 100 ATMs during their 21 years in the business. The couple relied on loans from friends and family while they waited for Bank of America to release their money.

NYC Situation

I’ve written before about NYC’s ban on cashless businesses, passed by the City Council in January 2020 to make sure that city residents that lack credit cards can purchase goods and services, despite pandemic-imposed strong pressure towards promoting cash-free transactions. The The proportion of city residents without a bank account is estimated as high as 10% IIRC, with the proportion described as underbanked numbering one in five. Many kids are included in these numbers (see War on Cash: NYC Enforces its Cashless Business Ban and War on Cash: New York City Businesses Must Accept Cash, City Council Decides). Another motivation for the NYC cashless ban was concern over the security of digital payments and their infrastructure.

Last week, I was marvelling at the opposite phenomenon, a popular local business that has managed to remain cash only, despite pandemic-related pressure to promote going cash-free. Last Saturday, February 12, I was in the mood for a Jamaican beef patty, so I walked the block and a bit from my house to Allan’s Bakery, a family-owned and operated bakery that’s been in business since 1960. Once I arrived, I donned my N95 mask, and joined the socially-distanced queue. On sunny weekend afternoons, even in February, Allan’s fosters a party atmosphere, with an employee acting as a DJ and playing music from street side speakers to entertain its waiting customers. Once inside, I quickly collected a beef patty, two currant rolls, and an order of codfish balls (with not-to-be-missed tamarind sauce). My treasures cost less than $10; if I hadn’t had cash, I could have snagged some from an independent ATM conveniently positioned inside. One reason Allan’s can keep prices low and quality high is it doesn’t fritter away revenues on bank fees from cashless transactions.

The city can – and has – fined businesses that violate the cashless ban. But I don’t think the city alone can mandate that someone, anyone, provide access to ATMS, independent or otherwise, in neighborhoods such as my own, which as I mentioned, lack extensive networks of bank branches.

Federal authorities rather than state or local ones have been involved in regulating independent ATMs, with the Department of Justice jumping into the regulatory weeds here. But that federal intervention was intended to crack down on alleged fraud and abuse – eg, ultimately restricting access to independent ATMs — rather than promoting easy, low cost access to ATM transactions. Not for the first time have I mulled the irony that the phrase “universal banking services” in the US context refers to one-stop shopping for the plethora of banking services , rather than making banking services universally available to anyone who has need for same.

Per the WSJ:

ATM operators were among the businesses that got caught up in the Justice Department’s Operation Choke Point, an investigation launched in 2013 into banks’ dealings with companies seen as more likely to be involved in illegal activity. Rather than go after the companies individually, prosecutors targeted the financial infrastructure keeping them in business, “choking them off from the very air they need to survive,” a department official told The Wall Street Journal at the time.

The initiative ended in 2017, but the account shutdowns didn’t. Banks continued to rely on regulatory guidance that warned independent ATM operators were a higher fraud and money-laundering risk.

These federal policy moves didn’t go unchallenged. Over to the WSJ again:

Late last year, following a yearslong lobbying push by ATM owners that earned the backing of lawmakers from both parties, regulators softened the guidance. Language discouraging banks from working with ATM owners was replaced with an acknowledgment of their role in bringing financial services to underserved areas.

But ATM owners say the new guidance has done little to make their lives easier. Bank OZKrecently shut down deposit accounts of several board members of the National ATM Council Inc., the industry’s trade group, citing risk. Bank OZK declined to comment.

Curt Selman’s account was among them, and it wasn’t the first time. JPMorgan Chase & Co., Regions Financial Corp. and a local community bank had previously cut him off.

“The window is getting smaller, and I just wonder when the music stops who’ll be there,” said Mr. Selman, who now has accounts with Simmons Bank and Veritex Community Bank.

JPMorgan and Regions declined to comment.

The Journal finally acknowledged in the latter part of its article that the banks hands aren’t exactly clean on this issue, because banks and independent ATMs are in competition for custom and customers:

The relationship between ATM owners and banks is complex because the two are also competitors. When people use their debit cards at independent ATMs, the bank that issued the card pays a fee to the ATM’s owner. That interchange fee is set by card networks. ATM owners say their cut of the fee has fallen.

In some cases, banks have put pressure on the merchants that provide space to ATM operators.

Jay Osman, who runs a string of ATMs in Mississippi, said he had to remove a few machines after a local bank told its customers that it would charge them $200 a month for having an ATM in their store.

Banks have piled more requirements on independent ATM operators, citing alleged state and federal regulations as the rationale for so doing. According to the WSJ:

In a December 2020 letter reviewed by the Journal, The Citizens Bank of Philadelphia, Miss., cited “state and federal regulations” that view privately owned ATMs as high-risk and requiring enhanced due diligence by banks as the reason for the charge.

Mr. Osman said he repeatedly told bank employees that the merchants aren’t handling the cash in his ATMs. He said the bank declined to change its policy. It didn’t respond to requests for comment.

After Bank of America shut down their accounts, the Ellises began relying more on another bank they worked with—BMO Harris. The bank told the Ellises they had to hire armored trucks to transport the cash, and it later increased their fees and limited the amount of money they could withdraw. To make up the difference, they opened accounts at a America Inc. branch roughly 100 miles away.

Their banking costs have swelled to about $2,000 a month, up from roughly $400. That includes $600 in rent for office space needed to accept deliveries from the armored trucks, which Comerica also required.

I haven’t noticed any change in the number of independent ATMs in my neighborhood in recent months. But nor do I rely on these machines enough that I would necessarily notice if such independent services became less available. But the WSJ article is a reminder that for cash to continue to be widely used, it’s necessary for people to be able to procure sufficient supplies to conduct their everyday transactions.

Alas, the war on cash continues.