Year: 2006
ATM breakeven
Banks install ATMs to lower their branch costs, and to attract new customers. When working out the economics of ATMs, we found that lowering branch costs alone could not be a viable reason to install an ATM.
The bank argued as follows:
“Every time someone withdraws money from an ATM, they avoid going to the branch. With enough people going to the ATM, I can afford not to increase my branch size, and that saves me money. Since it costs me Rs 20 every time a person withdraws cash (in terms of salary, rent, etc.) and an ATM costs about Rs 2,200 a day, I’ll break even if there are 110 cash withdrawals from the ATM.”
The argument misses a crucial point: every ATM transaction does not replace a branch transaction. People visit ATMs more frequently than branches, thanks to them having smaller queues and being open 24 hours. As a rule of thumb, people visit ATMs twice as often as a branch to withdraw cash.
A teammate didn’t believe me. We argued.
“When I used the branch, I would withdraw money for the entire month at the beginning of the month. I continue the same with an ATM.”
“But I withdraw cash whenever I need money. And in smaller chunks. Sometimes, I just withdraw Rs 200. That way, I get to carry less cash too.”
“Ah, you may be the exception, as always. Very well, I will find out.”
He went to a fairly representative branch, and asked them how much money would people withdraw before their ATM was installed. Since ATMs impose a limit of Rs 15,000, he discarded transactions above Rs 15,000. The answer was: people used to withdraw about Rs 3,600 every time they came to the branch. Then he asked, what’s the average ATM withdrawal. Answer: Rs 1,900. In other words, people seemed to withdraw only half as much from an ATM as from a branch. (And therefore, on average would withdraw twice as often every month.) My teammate was finally convinced.
So, in order to break even, the ATM must be used about 220 times a day, not 110 times. This is nearly impossible. ATMs are used mostly in peak hours: morning while travelling to work, during lunch, and evening when travelling back to work. Apart from these hours, the ATM is practically unused. This gives roughly a 4-hour window. The time between two ATM transactions is at least a minute. So a very busy ATM might be able to make the 220 transactions in that time. Most ATMs will not.
In fact, we found that only 4 ATMs managed to break even, among their 250. The cost-saving argument alone is difficult to justify an ATM.
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Until 1999, I used Perl a fair bit, but no more than Java or C or anything else. My first “real-life” use of Perl was in 2000, when I was processing 600MB of IBES data. Access and SPSS couldn’t handle the load. Perl slurped all the data in a few seconds, though. A few years later, when processing bank data (3GB worth, this time), Perl again was the only saviour. In fact, between Excel and Perl (and CPAN), I think I have all the data analysis power I’ve ever needed. This blog, for instance, is written in an Excel spreadsheet, exported to XML, and converted into the blog format by Perl.
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