COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COUNCIL COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, May 28, 1998 1:45 p.m. - - - Bill No. 970485 - An ordinance amending Section 19-201 of The Philadelphia Code entitled "City Depositories," by prohibiting certain electronic fund transfer fees or surcharges. PRESENT: COUNCILMAN MICHAEL A. NUTTER, Chairman COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN COUNCILWOMAN HAPPY FERNANDEZ COUNCILWOMAN DONNA REED MILLER COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD MARIANO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 I N D E X *Ben Hayllar, Director of Finance . . . . . . 5 City of Philadelphia **Thomas Queenan, Treasurer . . . . . . . . . 7 City of Philadelphia 8 Emma Chappell, Founder, Chairman, CEO. . . . . 18 United Bank of Philadelphia 9 Marta Aviles . . . . . . . . . . . . . . . . . 63 Eastern Philadelphia Organizing Project Gordon Whitman, Senior Organizer . . . . . . . 64 Eastern Philadelphia Organizing Project Lance Haver, Educational Director. . . . . . . 70 Consumers Education and Protective Association Jonathon Stein General Counsel . . . . . . . . 75 Community Legal Service Bruce McElrath, Chairman . . . . . . . . . . . 84 Disability Rights Advocacy Group - - - ***Carl Frank, Disability Rights Advocacy Group ***Greater Philadelphia Chamber of Commerce ***First Union National Bank - - - * - Additional testimony attached. ** - No testimony given; appeared before committee to answer questions. *** - Did not appear before committee; testimony is attached. 3 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Good afternoon, ladies and gentlemen. This is a meeting of the Committee on Commerce and Economic Development to hear testimony on Bill No. 970485. I'm Councilman Nutter, chair of the committee. To my left is Councilwoman Fernandez, the vice chair of the committee. To our left is Councilwoman Blackwell. To my right is Councilman DiCicco and Councilwoman Donna Reed Miller. This is a quorum of the committee. I'd like to read the title of the bill 13 and begin receiving testimony. Bill No. 970485, an ordinance amending Section 19-201 of The Philadelphia Code entitled "City Depositories," by prohibiting certain electronic fund transfer fees or surcharges. What I'd like to do is make a quick opening statement and then have our first witness up. I think they may have other individuals with them to testify. We plan to take testimony on this bill 23 in our public hearing and then subsequently have a public meeting. There are various pieces of testimony being circulated, the first being that 4 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 from the Finance Director. I think there is testimony from a couple of banks that may not be here today but want their testimony submitted into the record, and we will take care of that as well. We did, through my office, try to reach out to as many potentially affected parties by this legislation which was introduced on June 12, 1997, introduced by myself and cosponsored by 10 other members of City Council. 11 The normal public notice and 12 advertising was provided as well as a letter of 13 invitation to all City depository banks in the 14 City. Having said that and opened the table to my colleagues, if anyone would like to make an opening statement. Councilwoman Blackwell.
Thank you, Mr. Chairman. Mr. Chairman, I have to step out at this time, and should a vote occur before I return, I would like to be recorded as voting with the Chair on this bill, if the vote happens before I return.
Well, I can tell 5 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 you, the chair will be voting aye, so if you want to --
Let's first have the Finance Director, Mr. Hayllar, and I believe the City Treasurer, Mr. Queenan is with him, and any other parties that wish to testify on behalf of the City.
Thank you, Mr. Chairman. I'm Ben Hayllar, Director of Finance. With me is Thomas Queenan City Deputy Treasurer.
Mr. Hayllar, if would bring the microphone just a little closer.
Okay. Also, we are joined by (unintelligible) from the Finance Department. We make no defense of ATM or bank fees in general, but we would recommend this bill be defeated if it's brought to a vote because, simply, if passed, it would make it, we believe, impossible for the City to conduct its banking 6 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 business. The City has, by policy and financial prudence, always done its banking business with banks located in or very near the City of Philadelphia. Basically, we look for banks that employ Philadelphians. In addition, we are required by the volume and the sophistication of our banking business to use larger banks. Only a larger bank can afford to develop the systems that are required by the City of Philadelphia to conduct its payroll, pension depository, and receipts business. In our view of --
Okay. In our review of banks of the State of Pennsylvania, we have found only three that would not be prohibited, or potentially prohibited, from being a depository under the terms of this bill. 7 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Those banks include Republic, The Bank of Lancaster, and the Beaver Valley Bank in the far western part of the State. The Philadelphia banks, large and small, that we've been able to contact all charge surcharges or fees of some sort. Taking the bill literally, we believe that it would then prohibit us from doing business with any Philadelphia, eastern Pennsylvania bank, or virtually any bank large enough to handle our business. In my testimony, I list many of the sophisticated and expensive systems we require in order to issue payrolls, pension, and vendor checks. Let me point out that we issue more than a million checks a year. We also take in and record up to 400,000 payments each month. It is important that the City be able to access this money almost as quickly as we are able to get it into the bank. The further a depository is from us and the more manual its systems, the long it takes for us to have availability of our funds. This costs us money in the fact that we would not be able to invest that money as quickly as we receive that money. 8 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 I list a number of the issues that concern us, not the least of which is the State law requires that any bank doing business with us collateralize our funds with treasury or municipal securities. CoreStates, our current major depository, keeps in the Federal Reserve $40 million in treasury and municipal securities to collateralize our accounts. Any bank that substitutes for them or replaces them would have to put up that amount of securities. We don't believe many banks have the size to make that kind of a commitment. I also point out the direct deposit, auto-stop-payment's, anti-fraud systems are all required by us because of the volume of our business. We do not believe that anything but a very large institution would be able to provide that kind of service to us. In short, our concern is not with fees; we find them annoying as you do. Our concern is that the bill would prohibit us from doing business with a local bank or a bank capable of doing business with us. And our principal concern must be handling the receipts that come in, making 9 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 payroll, and making pension payments. If the bill is passed as we read it, we don't think we would be able to handle that. Thank you.
Thank you. Mr. Queenan, do you have any additional testimony or. . .
My name is Thomas Queenan. I'm Treasurer of the City of Philadelphia. No, I do not have any further testimony to provide other than that I might be able to answer any questions you may have regarding this bill.
Okay, thank you. Mr. Hayllar, let me go back to your comments for the record. And you did submit to my office yesterday your written testimony. I know all members of the committee have the testimony. Councilman Cohen, do you have Mr. Hayllar's testimony?
Okay. Your 10 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 testimony, both written and the verbal presentation today, clearly draws a line between any views on ATM surcharges versus a more narrower position with regard to impact of said bill on the City and your ability as the Finance Director and Mr. Queenan as the City Treasurer in that world, in that subsequent world than to do business.
I wouldn't call that a narrow view. Making payroll is of some importance to us.
No, I don't mean this -- no. You've got the big issue, you've got a narrower issue. I'm not defining how narrow it is. It's just a subset of a larger issue.
Okay. You made, though, in your statement -- at the end, you left the record with the impression that you might even have some personal opposition to surcharging as a practice. Did I get that impression from a comment that you made? 11 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
I think everyone would prefer to get whatever service they want for free or for little charge as possible. And I think, as any consumer, when you go to a bank machine, and some machines charge $2, you find that annoying, and I enjoin with just about everybody in that view. The fact is, virtually every bank that we could locate does charge some kind of a fee. My bank does not charge a fee for ATM machines registered with that bank.
So in all cases, I try to use that bank so I don't get charged a fee -- at least if it's feasible.
That seems to be the common practice for all of the banks. They don't charge you for using their own machines; they charge you for using others or if you -- although some of the banks do charge you for using someone else's. 12 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
That's correct. And if you are out of the region of your bank, in other city, you will be hit with a charge.
Councilwoman Fernandez, on that point, wanted to ask a question.
Could you clarify? When you say you couldn't do business with any of these banks, yet the bank you deal with and I think the bank I deal with, if I am using that bank or any of their branches, I am not charged fees. So why do you say all of them charge fees when --
If they don't charge it for own customers, which is the way that I'm reading this.
The way I read the 13 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 legislation was that if you charge a fee or a surcharge -- not even in Philadelphia, but anywhere -- then you would not be in compliance with the legislation. My bank does not charge me a fee because I have my deposit at that bank. However, if somebody who is a customer of another bank uses my bank's ATM machine, they would pay fee.
Why don't we ask the constructor of this bill. I read this to deal with if you are a customer of that bank -- i.e., you have your account there -- you shouldn't be charged any fees. I don't read this as applying to any customers of any bank who want to go use an ATM. Could you clarify that?
Sure, I can go back through that. 14 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 But I would like to ask Mr. Hayllar first, does your bank charge you if you use someone else's ATM?
Okay. Let me respond to Councilwoman Fernandez's question. It is commonly known that most banks do not charge their own customers for using their own ATMs, and there's pretty much no need to try to do anything about that because that's not a problem. They do, though, charge for the use of another bank's ATM, and if you go to another ATM, that bank that owns that machine or deployed that machine, they charge you also. The legislation is trying to address the issue of if you are a customer of a City depository bank and use another ATM owned by a City depository bank, you would not be charged by the City depository bank that owns the machine, and you would not be charged by your own bank for what is now characterized as a "foreign" bank transaction.
The problem is, in 15 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 the vernacular -- I mean, you basically get hit twice. People who own the machine, they can impose a fee, and your own bank imposes a fee for not using their machine. The theory is that everyone seems to want their customers to only use machines, and you pay a penalty when you go outside of that network; although the network was created so that everyone could participate in the network, and you'd have kind of a seamless way of getting access to your money no matter where you are.
My belief is that my essential point still stands that under those conditions, the City would find it very difficult, if not impossible, to find bank capable of handling our business.
Well, your point would be absolutely correct if there were no 20 middle position. I mean you have -- and I commend you for it -- skipped around the prospect of the banks just changing their policies. If they change their policy, everyone would still be able to participate, you'd be able to deposit your funds anywhere you want. 16 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 And I think the record at least has to reflect that there is a remedy short of the potential collapse of financial services in this city as we know it. Isn't that correct?
The middle ground is that if the banks change their policy, they're then in compliance, you can then deposit funds in those banks, right?
If they would. But their lack of attendance here today, save the president of one smaller bank, suggests that they're not doing that. And I have not, by the way, seen their testimony, so perhaps that's a. . .
We could go ahead and get you a copy. I mean, they are opposed.
But their presence or lack thereof doesn't prevent us from having a discussion about if the banks fall in compliance, change their policy, you then don't have a problem, correct?
That's correct. 17 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Okay. So there is some other position other than they're either in or they're either out. And if they're out, we can't put our money anywhere.
I understand your position, and I'm sure you understand our position is that we don't want to play chicken with getting the payroll out.
I understand that too. No one wants to be irresponsible. I mean, people have to just think about what it is that they want to do, what's the value of the relationship with the City, and I guess how important it is either from a marketing standpoint, which is, as I understand it, the primary force behind this, or any level of good will of having a relationship with the City as to what they want to do with their banking policies. Okay. Councilwoman, was my explanation clear enough? (Councilmembers Nutter and Fernandez confer off the record.)
Any other 18 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 testimony? Any other questions from any members of the committee? Councilman Cohen? (No further questions at this time.)
Obviously not. Thank you very much. Miss Emma Chappell. (Emma Chappell comes forward.)
Good afternoon. Please identify yourself for the record and proceed with your testimony, even though we all know who you are.
Good afternoon, Mr. Chairman and members of the Commerce and Economic Development Committee of the City Council. ), who is the vice president in charge of communications and marketing. As you know, my name is Emma Chappell. I'm the Founder and Chairman and CEO of the United Bank of Philadelphia, a full-service commercial community bank, established in 1992, with the support of the minority community we were founded to serve. I do want to apologize for not having a 19 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 copy of my presentation today to you, Mr. Chairman, but I will see to it that we get the copies directly to you later this afternoon for your distribution to your committee. I also want to thank you for allowing me this opportunity to address this very important issue to our bank. As the only minority-controlled commercial community development bank in the greater Philadelphia region, we have grown from a dream, with 0 assets, into a $114 million asset bank, with 6 branches and a network of 25 ATMs located in community satellites where they are desperately needed. Our remarkable growth against nearly impossible odds has not been without difficulty. Harsh competition from the mega banks, frequent and intensive examination and inspection by regulatory agencies compound the problems of a community bank. Added to this is the fact that the majority of our clientele not served by the big banks maintains very low account balances, which result in high transactional costs for providing 20 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 critically important services. Obviously, it is difficult maintaining profitability within an industry that is burdened with complex and numerous laws, regulations, and policies. My purpose today is to share with you some of our concerns about Bill No. 970485 and why United Bank absolutely needs ATM fees to serve our community. For the record, United Bank is categorically and unequivocally opposed to the proposed bill for the following reasons: First, contrary to popular perception, ATMs are not highly profitable. According to the Federal Reserve Bank boards, the bank board's functional cost analysis for the period 1990 to 1995, on average, expenses exceeded revenues by thousands of dollars per machine per year. Losses averaged about $7,200 per machine yearly. Secondly, installation and maintenance costs for ATMs vary according to location and type of machine. These costs include: purchase, installation and maintenance of ATMs, space rental, signage, security, insurance, cash 21 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 replenishment and associated security, deposit pickups and processing, computer network time, and other communications costs. Thirdly, ATMs or not a substitute for teller transactions; rather, they are a complement to teller transactions. The purpose for the installation of ATMs is to increase customer convenience. However, because of competitive pressures and increase in consumer demand, ATMs are not less expensive or a teller substitute. In other words, while an individual ATM transaction may cost less than a teller transaction, ATM users make more transactions, thus significantly increasing the overall costs. Fourth, United Bank's mission is to foster community development by providing quality personalized commercial banking services to businesses and individuals in the greater Philadelphia region, with special sensitivities to blacks, Hispanics, Asians, and women. Just like the mega banks who are abandoning our neighborhoods, it is clearly essential that we make a profit. 22 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Fifth, as the only minority-controlled full-service commercial community bank in the greater Philadelphia region -- and, I might add, in the state of Pennsylvania -- our mission is unique and essential.
In these times of unparalleled mega mergers, with branch after branch disappearing from our neighborhoods, we have seen and heard the anguished cries of abandoned consumers. During our own critical growth years, we scrambled hard to try and fill some of the enormous gaps left from the departure of the big banks. For example, we inaugurated a partnership with Rite Aid to provide ATM service at the neighborhood level. And only in late 1996 were we compelled to add a surcharge. Enforced price control on ATM services would reduce customer convenience, dramatically limit their choice of bank or location, and invariably impede accessibility to this vital service in the neighborhoods most in need. The federal government has mandated that federal benefits, including Social Security, veterans benefits, and welfare assistance, must be 23 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 delivered electronically to recipients in the Commonwealth of Pennsylvania and has begun implementing electronic benefits transfers (EBTs) for delivery of cash assistance and food stamp benefits to welfare recipients. Recipients will be issued a debit card, or are being issued a debit card, which will be used at ATMs to access benefits. If these new mandates are to succeed. Increased access to ATMs will be essential. Who is to purchase, manage, and provide ATMs? It should be explicitly noted that although mandated by federal and State government, there is no provision for funding these costly machines and services. If United Bank is to provide as well as expand access to costly, high transactional service to a community clearly in need, then a reasonable need for service is essential. If the proposed legislation is implemented, it will severely limit access to ATMs at a critical juncture whenever more individuals will need greatly increased access. If the City removes its deposits from community banks, the net result will be less dollars available to lend in 24 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 the communities that need it most. Finally, Mr. Chairman, if price control legislation on access fees are enacted, community banks with City depository status would be forced to abandon ATM services, with a devastating loss of accessibility to the communities most in need. I want to thank you, Mr. Chairman, for the opportunity to testify before this distinguished Council, and I shall be pleased to answer any questions that you may have.
Thank you very much. Thank you very much, Miss Chappell. Does the young lady next to you wish to testify, or is she just going to --
I understand. Well, we all need that. 25 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 I also want to thank you for responding to the survey that was sent out sometime ago. United did respond.
You have 25 ATMs in 12 the City, and they're spread throughout the City 13 or -- 14
Well, as you know, we 18 have six branches -- two are in Center City but 19 four are in the different neighborhood of North 20 Philadelphia, Mount Airy, Frankford and West 21 Philadelphia. 22 But the ATMs have allowed us to, in a 23 sense, have a mini branch in the neighborhoods 24 where they do not have access to banking services. And what we've been able to do is COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 locate ATMs, for example, in police stations, in Rite Aid pharmacies -- as you know, they're very much into the community. We have one in a Marriott Hotel, which we're proud to say. But, essentially, we've been out in those neighborhoods that are basically underserved or unserved as it relates to financial services.
Did some of these neighborhoods potentially previously have branches? Those branches closed, and then the ATM was seen as some level of viable alternative?
For lack of banking services? MISS CHAPPELL: Exactly. In fact, we were thrilled to bid on putting ATMs in the police stations because one of the things that we've found is that in order for people -- in particular in poor neighborhoods -- to have access to their deposits. They had nowhere to go. But we felt at the police stations, it would be a safer environment where people could go in and draw their money out and feel that they were not going to have trouble. 27 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 So we are typically in neighborhoods where banks are closed up and, in a sense, abandoned the neighborhoods, and people have nowhere else to go but check-cashing agencies.
Well, at least, in those environments, we at least know all the people who have the guns.
At least in the police station, when you go to get your money, you at least know who the people are who have the guns in that situation.
Let me pose, I guess, one kind of banking question to you. And it's been raised in this regard primarily as an issue for the smaller banks that participate in ATM networks. We don't always, naturally, want to see United Bank as a smaller bank, but for the moment, in comparison to some of the others, it might be considered a smaller bank.
And this is 28 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 comments from a piece that was written in Standard and Poor. It was a review of financial and banking services just about a year and a half ago. And the concern was on the surcharges that there was potentially a harm to small banks and credit unions. One reason that it received careful attention at the recent Senate hearings was the impact of surcharge policies on small banks and credit unions. Because of their small card base, these institutions deploy few if any ATMs but, instead, rely on the ATMs of the shared network to which they belong. Interestingly, although ATM service is clearly a large cost, these institutions offer free or low-cost ATM access more often than larger institutions. Surcharging provides a new tool for larger banks to drive depositors from these smaller banks. Large banks can raise the costs of smaller banks by assessing surcharges. Eventually, cardholders of these smaller banks, tired of paying these additional costs of ATMs will move their accounts to the large banks. 29 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 And I guess the theory is that if you have ATMs -- and we don't necessarily have to 4 get into names but, I mean, some banks in the City 5 have over 400 ATM machines -- the prospect of one 6 of your customers getting to one of your ATMs 7 versus someone else who has 400 machines across 8 the City is less likely. 9
And so, again, 11 under the current situation, the United Bank 12 customer possibly not quickly being able to find a 13 United Bank-owned ATM goes to a foreign bank ATM. 14 They get hit with a fee by the foreign bank, they 15 get hit with a fee by United, do you have any 16 concern that at some point in time, the United 17 customer realizes that if they jump to the larger 18 bank with the larger network of ATMs, 400 or so or 19 more, that they will eventually move from United 20 to the larger bank? 21
That is the reason why 30 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 we have expanded our ATM network -- in order to provide competitive edge so that we can compete with the larger banks and not necessarily lose our customers to them. But another thing that happens is that we do not charge our customers, either. And so while we're taking the time --
The reason why we pay on the foreign banks is because have to pay a fee to the foreign bank for processing. There are fees involved in all of the transactions.
And I don't know if that's brought out, but when someone goes to another bank and transacts their business or another ATM, we then have to pay a fee to receive our deposit. 31 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
So what happens is, in order for us to be competitive and to be -- since we only have six branches, and we're proud of that since we've only been open six years, it's still not -- we haven't covered the City, as the larger banks have. So in order for us to try to have a competitive edge, we have decided to do it by way of the ATM because we have found that a lot of our customers have direct deposits because they either work for the City, the State, or some government, and/or they work for health care, whatever the business is, if they direct-deposit, that's a one-time situation --
-- each pay period. Then they can draw their money out in any ATM throughout the City. And so that's why we formed an alliance with Rite Aid, which I said -- which 32 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 has opened up a number of stores in neighborhoods. And as a result, we're putting our ATM machines in through the Rite Aids, as many as we can afford.
And when a United Bank customer accesses that machine in the Rite Aid --
Exactly. So you're still not charging your customers to access --
I don't know, but I would venture to say that our costs are probably 60 percent of what we charge on each transaction.
All right. So that we have the roundest of numbers and don't complicate the math --
If the access fee is a dollar -- 33 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
-- then you're saying that the interchange fee is 60 cents.
It's not -- all the interchange fee is not -- it's not just the interchange fees. There's other fees that we take into account. As I said before, we have a network, we have to pay computer time, we have a number of fees that are taken into consideration for that.
On the foreign bank transaction, when the United customer goes to Bank X's ATM.
Does Bank X also have to pay an interchange fee for that? 34 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Unless they owned the ATMs and the computer time, yes. For example, when we bought into Mac, for example, there's just one bank that owned Mac. So then they were beginning to offer no 10 charge for ATM use.
Right. First it was Mellon. If you remember when Girard got started in Philadelphia, the Big G -- I mean -- what was it called. I think it was called "George."
And they owned George. 35 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 And now Mac was then bought -- acquired by CoreStates.
And so as a result, for a long time, CoreStates didn't charge any fees, or they had that as a promo, that they did charge it. But a lot of times, what happens is, if you look at a relationship -- your bank account and a bank does an evaluation on each bank account, "an analysis," as we call it. If you keep low deposits in the bank, then you are costing us money because we still pay computer time to give you your statements every month and to allow you to write checks and things of that sort.
Right. 36 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
But what our bank is suffering from is the low balance/high transactions. So when you take into consideration the cost of if you go and draw your money out of another bank, we have to pay that bank for processing, so it's processing time. And then we have to pay computer time on our side.
My last question in this area -- I mean part of the -- from the consumer's standpoint, at least, part of the recent furor about all of this is that the surcharging in essence started just a couple years ago. Your statement earlier is naturally absolutely correct. The network did not start with surcharging.
And as a result of 37 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 couple anti-interest cases on this issue, because originally, the networks that ran these systems would not allow banks --
-- to surcharge. And a few banks took networks to court, or threatened to take networks to court on antitrust violation.
And out of the that, the ban on surcharges by the networks were lifted. Subsequently, it's no surprise that everyone has jumped in --
-- into the surcharge business, but it did not start out this way, and now, all of a sudden, we have this activity going on. It's just interesting that it could start out --
-- with a no-surcharge environment. 38 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
And then, somehow, all of a sudden, when the network is -- I mean, I think we'd all have to admit that it continues to grow, but it is a fairly substantial network today. Much of the infrastructure has already been put in place before the surcharging started.
Well, I wouldn't say that, I wouldn't agree with that because there's still the situation of accessibility. You still have to buy the machines, you have to locate them wherever you're going to locate them, you have to pay for a Brinks or a Brooks or someone to pick up the money and to stock the machine. You have to pay for insurance to make sure nobody steals the machine and pulls it away and whatever. You have to pay for your computer time. There's just a lot of costs involved that people don't know about that goes into that. So I think that while it appears that way, I remember when we used to -- when we originally became a member of bank Mac, we didn't have to pay for that; now we have to pay for the usage of the Mac name, even on our. 39 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 So everything, you know -- and I think a lot of it has to do with -- it's the case of supply and demand. And the more the demand increases and the more supply has to be made available, the more the costs go up.
All right. And so there were not nearly the number of machines in those communities as are now. And so the more machines that are made available, the more costly it is.
You mentioned ATM machines at Rite Aids and police stations and the Marriott. Could you say for each of those, what's the financial arrangement?
Who pays for what? I can't do it directly except on a Rite Aid 40 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 transaction. On the police and what-have-you, I have my chief operating officer work on it, and he wasn't in today, so that's why he's not here. But in the Rite Aid situation, we buy everything. We buy the machine, we take care of all the costs. And the only time that Rite Aid will benefit is if we reach a certain level of business in that particular ATM machine. Let's say the volume is so high and then the machine becomes profitable, then Rite Aid will get a certain percentage of the profit. But right now, Rite Aid has not received anything because we're still building the usage of the machine. You have to have dollars marketed. I could also say that for the ones that we had put in the police station. We did that through a relationship with the City of Philadelphia. And they have not received any money because it has not gotten to the volume yet. All of our ATM machines have put in if the for the last year or two. And I think it takes something like 3,000 transactions a month in order to break even. And then after it breaks 41 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 even, then you get the profit level.
Could you send to the Chair a copy of the agreement with the Police Department? I was not -- I had heard about it vaguely, but I wasn't really clear about what the deal was. I could see -- I think the idea of having them in police stations is --
-- a good one. As you say, the security and to have the police station used for something other than when you've been real bad is nice.
But I could see where Rite Aid and other stores, they could profit just by having someone come in the store. They hope they buy more.
That's right. They haven't gotten any money yet, though, either. In 42 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 their defense, I mean, they have not been on us for that. They know that we have not reached the critical mass that is necessary to allow the machine to pay for itself or to allow the bank to get any profit of it. Right now, it is simply a convenience. We know there are a lot of senior citizens and people who do not have cars and things of that sort in the neighborhood. So what we've been attempting to do is provide a service, as long as it's not too costly to the bank. And so until such time as it reaches that critical mass, either from the police station and otherwise, they are not getting any money out of it. But we were able to show them exactly what it costs us, and that's why the agreement was made to do that.
Also, could you share with us, what's the cost of use of this shared network? Like do you pay it by transaction or do you have like a set deal?
So it's for each -- 43 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
And I will send you all the breakdown on that so that you'll have a better understanding of what we pay.
Right. And, by the way, I should tell you that the fact that we are a small community bank, there is no differential on whether we pay less than a big bank or anything else. They say that we're big boys now. Once we open the doors of a bank, we're a bank. And so it's not that anybody cuts us any deals because we're a small community bank with low margin, but I will send that you data.
Well, I think it would also be important to note for the record -- I'm old enough to remember when people did go to the bank, you know, to make the deposits, with the person, the teller. I got to know the one at our bank very well. And then they later installed drive-ins and I got to know her real well. 44 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
But your bank probably has not benefitted, but the other banks who have been in business a long time have certainly benefitted financially from having fewer employees. If I -- I haven't seen any numbers, but I'm sure there's been a study of the per -- the ratio of tellers to customers in banks that have been in business for a long time. So I think, for the record, we should note that people using ATMs -- I know I haven't been in a bank for years except when they ate my card once.
You'd be amazed -- banks are still very busy. And I don't see it as a replacement for --
But, I'm saying, I don't think it affects you. But, I'm saying for the other banks --