The ramifications of shared ATM networks on the efficiency of Turkish banks
H. Evren Damar
- This study investigates whether developing shared ATM sites has yielded positive benefits for lenders in Turkey by increasing their productive efficiency.
- The performance of the bank sectors of growing countries has recently become a theme appealing in the books. Most of this attention has been focused on the impact of financial liberalization on the performance efficiency of banking institutions in a variety of countries.
- An aspect of financial liberalization that is not dealt with in this books is the impact of new technology adoption and posting that usually accompanies the liberalization and opening up of the banking sector.
- The utilization of technology such as Automated Teller Machines (ATMs) in growing countries has increased significantly during the past 15 years roughly.
- Although the idea behind the benefits from the adoption and posting of such technologies is well-understood, empirical studies that go through the actual realization of these benefits are relatively few.
- The goals of this study are to research whether ATM showing has benefited Turkish banking institutions by increasing their effective efficiency and also to donate to the literature on loan company efficiency in growing countries through concentrating on aspects of lender behaviour that have yet to be completely examined.
- The ideas behind ATM writing and its own benefits are based on the introduction of shared ATM networks in america during the 1970s and 1980s.
- In broad conditions, there are two opposing effects associated with distributed ATM networks. The benefits of ATM showing are called 'network' and 'economies of scale' results (Prager, 1999).
- Network effects claim that the value customers attach to ATM services offered by a bank goes up as how big is the ATM network raises. Quite simply, the addition of a fresh bank or a new ATM to the network increases the attractiveness of all lenders within the network to their customers. That is an important concern because it allows for banks to capture more business without having to boost the size of their branch or ATM networks.
- For example Vesala (2000) confirms that following the start of ATM writing in Western Europe, banks have opened fewer new branches and deployed fewer new ATMs.
- Economies of level imply that the price per transaction at an ATM declines as the number of transactions raises.
- Each ATM location has a varying cost and a set cost associated with it.
- Although varying costs (film, newspaper, etc. ) are directly proportional to the number of orders conducted at the particular ATM, fixed costs (such as the price tag on purchasing or leasing the ATMs) decrease as the quantity ventures increase (Saloner and Shepard, 1995).
- Therefore, by increasing the amount of transactions, a shared ATM network can turn an unprofitable ATM into a profitable one.
- On the other hand, the occurrence of shared-ATM systems has also been shown to have unwanted effects on participating banks. These effects arise because ATM showing reduces the level of product differentiation between bankers and allows depositors to change banking institutions without incurring high costs. In their research of ATM network compatibility, Matutes and Padilla (1994) make reference to this as the 'substitution impact' and show that its existence is definitely an impediment to obtaining full ATM compatibility within the bank sector.
- In simple terms, whether a loan provider can benefit from a shared-ATM network will depend on which of the effects detailed above dominates. If the network and economies of level effects dominate, then the bank will be able to offer a more convenient product, accumulate more debris and potentially increase profits. On the other hand, if the substitution result dominates, then ATM sharing may bring about a loss of depositors and revenue.
- This problem may easily be framed within the concept of fruitful efficiency of bankers.
- If ATMs are considered an type in the 'creation' of deposits, then the presence of any benefits from ATM posting would be mirrored in the efficiency ratings of finance institutions. If indeed the network and economies of level results dominate, then finance institutions that are employed in ATM sharing will have relatively higher efficiency ratings. On the other hand, if the substitution impact dominates, this would result in lower effective efficiency.
- Evolution of distributed ATM sites in Turkey
- Similar to other developing countries, ATM technology was presented in Turkey during the past due 1980s. As the amount of competition in the banking sector increased in the 1990s, there is a widespread increase in ATM usage. By 1995, there have been 5000 ATM locations in Turkey and this number doubled by the finish of 1999 (Isik and Hassan, 2002). By this particular date 27 out of 62 first deposit collecting institutions possessed adopted ATM technology and another seven had issued ATM credit cards to their customers, although these banking institutions themselves did not own or operate their own ATMs.
- The first distributed ATM network in Turkey (known as the 'Pamukbank-YKB Network') was shaped in 1993, and was soon accompanied by a shared ATM design between four bankers, named 'Golden Items'.
- Unlike the united states, shared ATM networks in Turkey didn't start as local networks between local challengers. Since Turkey is significantly smaller than the united states, most banking institutions operate in every major cities plus some rural provinces.
- Therefore, the Turkish distributed ATM networks started from a 'national' and not a 'regional' network stage. By 1999, ATM posting had become a widespread trend, with three more banks subscribing to the Golden Items network and 16 smaller finance institutions forming another network in 1998, named 'Common Things. ' However, three of the five biggest banking companies in Turkey sustained to operate proprietary systems.
- ATM transactions
- Total deposits
- Total loans
- Fees and commissions
- no. of ATMs
- no. of distributed NW ATMs
- no. of branches
- no. of employees
- Interest on deposit
- Operating expenses
Conclusion (READ IT AGAIN)
This study has viewed the development of shared ATM sites in Turkey and has attempted to see whether banking institutions have been able to realize online positive network and size effects through ATM writing.
The main finding of this study is the fact participation in distributed ATM sites has didn't boost the efficiency of small and medium size banking companies. The fact that almost all of these banks have a tendency to show their ATMs with the other person (rather than with big banks) can be an essential aspect in their relatively lower efficiency results.
The lack of significant positive benefits for many medium and small lenders matches the conclusions reached by Matutes and Padilla (1994). Their results claim that ATM compatibility is easier and more effective if shared-ATM networks are shaped by banking institutions that operate in separate locations because of regulatory reasons or credited to geographical factors.
On the other hands if banking companies that be competitive for debris within a market decide to show their ATMs, this might decrease the level of product differentiation between these banking institutions, causing the writing arrangement to become costly and inadequate.
Similarly, Holden and El-Bannany's (2004) conclusion that there is no marriage between ATM posting and bank profitability in the UK may be due to the fact that finance institutions in their test are not differentiated relating to size and geographic attention.
The findings of the analysis also support Carbo et al. (2003), who argue that technology adoption and showing do not necessarily yield cost savings for small bankers. The results discussed above take this finding one step further by arguing that such technology adoption by small bankers can change into costly idle capacity. For the case of Turkey, there is ample evidence of such idle capacity. For example, Table 5 implies that many medium size banks display DRS.
It is likely that a few of this unwanted capacity is induced by ATMs that are deployed in cities, but infrequently used by depositors. A similar observation has been made by the Banks Association of Turkey, which has concluded that 'some ATMs operated by banks are located too close to each other and this is a waste material of resources. ' They suggested that lenders should try 'to boost the showing of existing ATMs before deploying new ones'.
One possible solution to this issue of low efficiency among small and medium banking institutions would be for these finance institutions to form writing preparations with bigger bankers. This would permit them to truly develop the services they will offer and gain an advantage over their competitors. Just lately, strides have been made towards such preparations, with one small and one medium loan company from the Common Points network signing an ATM writing arrangement with the Pamukbank-YKB network in early 2003.
However, it is also possible that big finance institutions wouldn't normally be eager to allow smaller banking companies to join their shared ATM systems, as this would make it harder for bigger banking institutions to distinguish themselves. Similar problems have been echoed by big finance institutions in Turkey, who've explained that 'the possible aftereffect of increased sharing on the lenders with intensive branch and ATM systems can be an important issue'.
Another likelihood has been put forward by Carbo et al. (2003), who dispute that the lack of uniform benefits from technology-sharing plans should promote loan consolidation in the bank sector. Inside the context of the Turkish bank sector, the loan consolidation argument indicate that the large numbers of small and medium banking institutions that offer similar products can be consolidated into a few big banking institutions that would be able to offer differentiated products and contend with other banks. One of the implications of the 1999-2001 bank problems in Turkey has been a government-encouraged wave of consolidation, the efficiency impact of which remains to be seen.
Other than being the first study to look at the effects of ATM showing on fruitful efficiency, the period covered in the examination is also significant.
The period 2000-2003 corresponds to one of the most severe banking crises in Turkish record and the beginning of the best organized and executed rehabilitation program of the bank sector.
Although the amount of branches and depository corporations lowered significantly between 2000- 2003, the expansion rate of ATMs has continued to be high and positive. This may suggest that lenders and regulatory regulators do not consider the build-up of ATMs as a serious overcapacity concern. This study, however, makes a spot of extreme caution that more ATM writing does not automatically signify efficiency benefits for banks. On the contrary, an increase in ATM sharing exclusively within the urban market segments will be more likely to boost the costs of finance institutions without generating any additional advantages to their customers.
Although ATMs are still significantly cheaper than branches, functioning and posting unproductive ATMs can possibly donate to another build-up of overcapacity. The only real two options for avoiding this potential problem are either further consolidation of the banking sector or a carefully planned restructuring of the existing sharing agreements.
Also We Can Offer!
- Argumentative essay
- Best college essays
- Buy custom essays online
- Buy essay online
- Cheap essay
- Cheap essay writing service
- Cheap writing service
- College essay
- College essay introduction
- College essay writing service
- Compare and contrast essay
- Custom essay
- Custom essay writing service
- Custom essays writing services
- Death penalty essay
- Do my essay
- Essay about love
- Essay about yourself
- Essay help
- Essay writing help
- Essay writing service reviews
- Essays online
- Fast food essay
- George orwell essays
- Human rights essay
- Narrative essay
- Pay to write essay
- Personal essay for college
- Personal narrative essay
- Persuasive writing
- Write my essay
- Write my essay for me cheap
- Writing a scholarship essay