Research Discussion Papers, Bank of Finland
No 21/2006:
ATM networks and cash usage
Heli Snellman ()
and Matti Virén ()
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.
Keywords: automated teller machine; demand for cash; banking; means of payment; (follow links to similar papers)
JEL-Codes: E41; E51; (follow links to similar papers)
33 pages, November 5, 2006
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