ATM networks and cash usage

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ATM networks and cash usage

Author Info

Snellman , Heli () (Bank of Finland Research)
Virén , Matti () (Bank of Finland Research)

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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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.bof.fi/en/tutkimus
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Find related papers by JEL classification:
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-12-09 (All new papers)
NEP-BAN-2006-12-09 (Banking)
NEP-NET-2006-12-09 (Network Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Dennis W. Carlton & Alan S. Frankel, 1995. "Antitrust and payment technologies," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 41-54. [Downloadable!]
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. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Snellman, Jussi & Vesala, Jukka & Humphrey, David, 2000. "Substitution of noncash payment instruments for cash in Europe," Research Discussion Papers 1/2000, Bank of Finland. [Downloadable!]
Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May. [Downloadable!] (restricted)
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. [Downloadable!]
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. [Downloadable!] (restricted)
Other versions:
- James J. McAndrews & Rafael Rob, 1994. "Shared ownership and pricing in a network switch," Working Papers 94-6, Federal Reserve Bank of Philadelphia.
James J. McAndrews, 2003. "Automated Teller Machine Network Pricing - A Review of the Literature," Review of Network Economics, Concept Economics, vol. 2(2), pages 146-158, June. [Downloadable!]

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Wilko Bolt, 2006. "Payment Scale Economies and the Replacement of Cash and Stored Value Cards," DNB Working Papers 122, Netherlands Central Bank, Research Department. [Downloadable!]
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. [Downloadable!]

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