What does the decline in ATM withdrawals mean for cash?

So, does the decline in the number of ATM withdrawals over the past few years portend a more rapid decline in the use of cash?  Short answer — no!  

In addition to hosting an Independent ATM deployers committee, ATMIA also created a Financial Institution ATM Deployers Forum several years ago, as a discussion vehicle for bank and credit union members. During one of its meetings last year, a member commented that his executive team was looking for an explanation for the 2 -3% decline in ATM withdrawals they had been experiencing. It was interesting to hear that others on the call were seeing a similar trend.  

Coincidently, the 2018 Annual Supplement for the Federal Reserve Payments Study included a segment on Large-Institution ATM Withdrawals. Data from 100 or so of the largest depository institutions "showed a 2.8% decline in the number of ATM withdrawals from 2016 to 2017 and an increase in the value of ATM withdrawals of only 0.5%, less than the rate of inflation over the period (roughly 2 %)"

All of that got my wheels turning, because that "trend" would seem to run counter to what I was hearing about the health of cash both in and outside of the U.S. In addition, the Fed and census numbers in previous reports — as I recalled — had shown withdrawal numbers rather steady up until 2015 (a bit under 6 Billion).  After which, we were starting to see only a very slight decline.

Anywhere you look, the growth of cash continues on an upward trend.  According to the Federal Reserve's Cash Product Office as of January 2019, U.S. currency in circulation reached $1.7 Trillion worldwide — an increase of 6.4% YOY.  And depending on the transaction value and venue, cash is still the preferred method of payment.  So all things considered, one would think that the average American is still going to need to visit the ATM for cash.

The Federal Reserve finally released the 2019 Payments Study last month, which sheds some light on the conflicts and inconsistencies, but you have to dig for it. Unlike the 2018 supplement previously referenced, the 2019 Payments Study accounts for all ATM withdrawals,  including those operated by small banks, credit unions, and independents.

Quoting from the report, "The number of ATM cash withdrawals fell to 5.1 billion in 2018, a slight decline of 0.1 billion since 2015, while the value grew to $0.80 trillion, an increase of $0.03 trillion from 2015." Looking at it another way, the latest study finds a 0.9% yearly decrease in number of withdrawals, but value is growing by 1.5%.  If the value of withdrawals is growing at a rate 167% of the rate of decline, can you really say that there is any decline? One can make a valid statement that ATM withdrawals are actually increasing — total value of all withdrawals grow more than 1% per year from 2015 to 2018. In fact, the increase in the total value of withdrawals between 2015 and 2018 is three times what it was from 2012 to 2015.

The 2019 report also raises some new questions. If larger banks did indeed see a 2.8% decline in ATM withdrawals between 2016 and 2017, which is three times the overall average, what accounts for the difference?  The answer may be found in data relating to "foreign bank" withdrawals. That is, withdrawals from accounts not held by the bank ATM operator ("off-us").  "Foreign ATM cash withdrawals declined at a rate of 3.7 percent per year by number . . . from 2015 to 2018."  Which is a significant decline that could help explain the 2.8% drop in large-bank withdrawals for the 2016/2017 period.

Therefore, with the total value of all withdrawals showing an average annual growth rate of 1%, any decline in the withdrawal activity at larger banks is probably due to a combination of a number of factors. And it would seem likely, then, that much of that decline in activity is being made up by an increase in activity at smaller financial institutions and independently operated ATMs.

Other contributing factors are more difficult to quantify.  Some consumers may simply be making fewer trips to the ATM, but withdrawing more cash, for the sake of convenience. Others may be utilizing ATMs that are closer to home or work — again — for the sake of convenience.

Regardless of the rationale, it will be interesting to see whether these trends continue. NextGen ATMs may have some additional impact, as well, as more functionality is deployed on both bank and independent terminals.