The role of interchange fees in ATM networks
We develop a model to study the deployment of shared automated teller machines (ATMs) by banks when an interchange system compensates them for processing foreign withdrawals. The interchange fee is chosen collectively by banks and it is paid by the withdrawer's bank to the ATM-owning bank. We show that a high level of interchange fee softens competition on the market for deposits but increases competition on the market for withdrawals. As the former effect dominates the latter, profits are increasing in the interchange fee. This confirms the presumption that the interchange system can be used as a collusive device by banks. The model predicts an over-provision of ATMs when the number of banks is large. The predictions of the model are shown to be valid under a wide range of assumptions including different cost structures and different pricing schemes of ATM transactions. They are also consistent with the empirical evidence concerning interchange fees and foreign fees.
|Date of creation:||26 Nov 2003|
|Date of revision:|
|Note:||Type of Document - pdf; prepared on WinXP; pages: 30; figures: Yes|
|Contact details of provider:|| Web page: http://220.127.116.11 |
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.:
- 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.
- Matutes, Carmen & Padilla, A. Jorge, 1994. "Shared ATM networks and banking competition," European Economic Review, Elsevier, vol. 38(5), pages 1113-1138, May.
- W. Bolt, 2003. "Retail Payments in the Netherlands: some Facts and Some Theory," WO Research Memoranda (discontinued) 722, Netherlands Central Bank, Research Department.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpio:0311002. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.