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ATM networks and cash usage


  • Snellman, Heli
  • Virén, Matti


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. Key words: automated teller machine, demand for cash, banking, means of payment JEL classification numbers: E41, E51

Suggested Citation

  • Snellman, Heli & Virén, Matti, 2006. "ATM networks and cash usage," Research Discussion Papers 21/2006, Bank of Finland.
  • Handle: RePEc:bof:bofrdp:2006_021

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    References listed on IDEAS

    1. 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, April.
    2. Helmut Stix, 2004. "How Do Debit Cards Affect Cash Demand? Survey Data Evidence," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(2), pages 93-115, June.
    3. 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.
    4. Donald I. Baker, 1995. "Shared ATM networks - the antitrust dimension," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 5-17.
    5. 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 246-257, May.
    6. Whitesell, William C, 1992. "Deposit Banks and the Market for Payment Media," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 483-498, November.
    7. Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
    8. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 66(4), pages 545-556.
    9. Dennis W. Carlton & Alan S. Frankel, 1995. "Antitrust and payment technologies," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 41-54.
    10. Snellman, Jussi & Vesala, Jukka & Humphrey, David, 2000. "Substitution on noncash payment instruments for cash in Europe," Research Discussion Papers 1/2000, Bank of Finland.
    11. 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.
    12. Snellman, Heli, 2006. "Automated teller machine network market structure and cash usage," Scientific Monographs, Bank of Finland, number 2006_038, November.
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    Cited by:

    1. 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.
    2. 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.

    More about this item

    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

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