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Refining ATM Density

April 18, 2011 by Dominic Hirsch — manager, Retail Banking Research

During the recent China ATMs 2011 conference in Beijing Huang Jianjun from Agricultural Bank of China presented a chart that captured my imagination. It showed ATM density for different cities and provinces in the country. Two cities, Shenzhen (just north of Hong Kong) and Xiamen (in southeastern China), have densities of more than 1,000 ATMs per million inhabitants, well above the western European average of 795 – and Beijing and Shanghai are not far behind. Of course, given the low overall ATM density in China, there is a long tail with 17 areas having fewer than 200 ATMs per million people.

This raises an intriguing question about the extent to which ATM density analysis can be refined. Although surprisingly instructive, simply dividing the number of ATMs in a country by the population (in millions) is a relatively crude way of examining maturity and the potential for further ATM growth.

Breaking countries down into smaller geographic areas certainly provides insights into which areas within a country have the greatest capacity for future growth. Benchmarks that indicate when a region is becoming saturated are harder to identify, increasingly so as you break a country into smaller areas. Comparing regional densities within a country, to country averages elsewhere, also risks being misleading.

The difficulty of breaking samples into smaller units is highlighted by another ATM statistic, ATM usage. At a country level, there are typically 2,000 to 4,000 cash withdrawals a month per ATM, yet it is not unusual for a few ATMs in a country to be used more than 20,000 times per month. How useful, though, is this higher figure?

ATM density can be refined in numerous ways, not just by adjusting geographic areas. Such analyses are valuable so long as they are well understood and used for specific purposes.

Over the years, however, comparing the number of ATMs in a country to its population has proved to be the most popular ATM density metric, not least because of its simplicity – I don’t see that changing.

Reprinted from Banking Automation Bulletin (see www.rbrlondon.com/bulletin for more information)