Consumer Cash Withdrawal Behaviour: Branch Networks and Online Financial Innovation

Bank branch networks play a crucial role in consumer’s cash withdrawals. To withdraw cash from branches, consumers usually have to travel and incur shoe-leather costs. Therefore, consumers economize these trips by adjusting their withdrawal amounts or combining withdrawals with other errands into single, multi-purpose trips. Our paper provides a model estimating how important travel distances are for consumers’ cash withdrawal behaviour so that we can evaluate how changes in bank branch networks affect consumers’ demand for cash.

Our empirical approach generalizes the classical cash inventory model to allow for two types of withdrawal: those that are the result of a consumer conveniently encountering a free/low-cost withdrawal opportunity (i.e., on their commute to work or grocery shopping) or those that a consumer makes a specific trip for, incurring a higher cost for the withdrawal. We first classify withdrawal types based on the Bank of Canada’s Methods-of-Payment surveys and then estimate the effect of distance on consumers’ withdrawal behaviour for the higher-cost withdrawal type.   

We find that a distance threshold effect exists. The farther consumers must travel to withdraw cash, the fewer number of withdrawals they make if they live within 1.56 kilometres of their affiliated bank. In addition, we find that distance tends to have a larger impact on higher-income and older-age cohorts.