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This article deals with the issue of how the market structure in banking affects the choice of the 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 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. More generally, the number of ATMs depends on competitiveness in the banking sector. The predictions of the theoretical analysis are tested using a panel data from 20 Organization for Economic Co-operation and Development (OECD) countries for the period 1988 to 2003. Empirical analysis shows that there is a strong and robust relationship between the number of ATM networks and the number of ATMs (in relation to populations). Moreover, it can be shown that the demand for cash depends on the number of ATMs, ATM networks and the popularity of other means of payment. Thus, the use of cash can be pretty well explained in the transaction demand framework assuming that the market structure and technical environment is properly controlled.
