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7 May 2019

Financial Institutions

Roles of ATMs amid Transition Towards Cashless Society Needed to be Recognized (Current Issue No.2987)

           In 2018, the number of ATMs and electronic devices used in the commercial banking system contracted 0.98 percent YoY, against the 5.17 percent growth reported for 2017, representing the first shrinkage in 35 years. Such a contraction was consistent with the substantial increase in the number of financial transactions made via digital channels. This suggests a decline in the need for the use of cash and represents a challenge to the ATM business of commercial banks in terms of its cost-effectiveness. In addition, commercial banks are increasingly turning to digital channels because the costs in offering financial services through ATMs are 30 times higher than those provided via digital channels. The cost-effectiveness of the ATM business is based on monetary and non-monetary factors, namely customer satisfaction and convenience in using financial services.  

           The cost-effectiveness cycle of the ATM business, based on the volume of transactions per the number of ATMs, can be divided into four phases, i.e., 1) an investment phase; 2) a break-even point phase; 3) a phase when the business begins incur losses. We at KResearch view that the ATM business began to incur losses in 2017 because some financial services offered via ATMs were replaced by mobile banking, as evidenced by the decline in the volume of transactions per the number of ATMs. The fourth phase is when the business incurs losses as the number of loss-making ATMs increases and this may affect the future ATM business model, though this may depend on a number of factors, such as customer benefits (the need to use cash) and business benefits (monetary factors, e.g., costs and operating results, plus non-monetary factors, e.g., branding).

            However, if the need for the use of cash declines rapidly, this may force commercial banks to share their ATMs. KResearch has assessed that for every 5 percent drop in the number of ATMs, the entire financial institution system can save on such costs by THB5.22-5.88 billion p.a., accounting for approximately 0.03 percent of GDP, though the costs may depend on the model of shared ATMs per the regulatory requirements and agreements by commercial banks and relevant parties.     ​

Financial Institutions