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ATM networks and cash usage

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Author Info

  • Snellman , Heli

    ()
    (Bank of Finland Research)

  • Virén , Matti

    ()
    (Bank of Finland Research)

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    Abstract

    This paper deals with the issue of how the market structure in banking affects the choice of means of payment. In particular, the demand for cash is analysed from this point of view. The analysis is based on a simple spatial transactions model in which the banks’ optimization problem is solved. The solution quite clearly shows that monopoly banks have an incentive to restrict the number of ATMs to a minimum. In general, the number of ATMs depends on competitiveness in the banking sector. The predictions of the theoretical analysis are tested using panel data from 20 OECD countries for the period 1988–2003. Empirical analysis reveals that there is a strong and robust relationship between the number of ATM networks and the number of ATMs (in relation to population). It also reveals that the demand for cash depends both on the number of ATMs and ATM networks and on the popularity of other means of payment. Thus, the use of cash can be fairly well explained in a transaction demand framework, assuming proper controls for market structure and technical environment.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0621netti.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 21/2006.

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    Length: 33 pages
    Date of creation: 05 Nov 2006
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2006_021

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    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: automated teller machine; demand for cash; banking; means of payment;

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    References

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    1. McAndrews, James J. & Rob, Rafael, 1996. "Shared ownership and pricing in a network switch," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 727-745, October.
    2. Helmut Stix, 2003. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Working Papers 82, Oesterreichische Nationalbank (Austrian Central Bank).
    3. Donald I. Baker, 1995. "Shared ATM networks - the antitrust dimension," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 5-17.
    4. Mathias Drehmann & Charles Goodhart & Malte Krueger, 2002. "The challenges facing currency usage: will the traditional transaction medium be able to resist competition from the new technologies?," Economic Policy, CEPR & CES & MSH, vol. 17(34), pages 193-228, 04.
    5. Dennis W. Carlton & Alan S. Frankel, 1995. "Antitrust and payment technologies," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 41-54.
    6. Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
    7. Whitesell, William C, 1989. "The Demand for Currency versus Debitable Accounts: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 246-57, May.
    8. Mcandrews James J., 2003. "Automated Teller Machine Network Pricing - A Review of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-13, June.
    9. David A. Balto, 1995. "Payment systems and antitrust: can the opportunities for network competition be recognized?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 19-40.
    10. Snellman, Jussi & Vesala, Jukka & Humphrey, David, 2000. "Substitution of noncash payment instruments for cash in Europe," Research Discussion Papers 1/2000, Bank of Finland.
    11. Snellman, Heli, 2006. "Automated Teller Machine network market structure and cash usage," Scientific Monographs E:38/2006, Bank of Finland.
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    Cited by:
    1. Eugene Amromin & Sujit Chakravorti, 2007. "Debit card and cash usage: a cross-country analysis," Working Paper Series WP-07-04, Federal Reserve Bank of Chicago.
    2. Wilko Bolt & David Humphrey, 2006. "Payment Scale Economies and the Replacement of Cash and Stored Value Cards," DNB Working Papers 122, Netherlands Central Bank, Research Department.

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