Competing Technologies for Payments: Automated Teller Machines (ATMs), Point of Sale (POS) Terminals and the Demand for Currency

Payment cards are considered as the main drivers of the shift from paper-based towards electronic-based payment instruments, which is commonly viewed as a significant socioeconomic and welfare improvement. This shift, however, is following a slow path in many developed countries which may be, at least partially, due to the over-time overlapping of the objectives of banks in deploying automated teller machines (ATMs) and point of sale (POS) devices. In this working paper, we employ a unique database to explore these issues. The results of various empirical tests suggest that the intensity of adoption and diffusion of ATM and POS transactions is mostly driven by rival precedence, network effects and market power, while demand factors do not seem to be significant. Additionally, the growth of ATMs is found to negatively affect POS adoption. We provide estimates of the effects of these technologies on the demand for currency, showing that POS devices and higher debit and credit POS transactions may significantly reduce the demand for currency.