Book Review: Cash and Dash – How ATMs and computers changed banking

Looks like a fascinating and an important book, given the times we living in.

Prof Scott Burns of Troy University reviews the book on eh.net:

The impact of new financial technologies from mobile money in the developing world to payment apps like Venmo, Square, and Apple Pay in the developed world as well as the potential of blockchain technology has attracted enormous scholarly attention in recent years. In his latest book, Bernardo Bátiz-Lazo draws our focus to the one of the original transformational FinTech innovations: the ATM.

Bátiz-Lazo, a professor of business history and bank management at Bangor University, has already established himself as one of the world’s leading experts on financial technology. Cash and Dash takes a deep dive into the intriguing and underappreciated history of what former Fed Chairman Paul Volcker called “the most important financial innovation” of the twentieth century (p. 1) – the ATM.

Given the enormous impact the ATM has had and how little we knew about its origins, the book certainly fills an important gap in the FinTech literature. It is the culmination of more than a decade’s worth of research and is extensively sourced, including more than fifty interviews of bankers and engineers as well as patent records, press releases and hundreds of academic articles.

After an introductory chapter, chapters two through four provide a detailed look into the invention and development of early ATMs in the 1960s. One of the core insights from these chapters is that, contrary to a popular misconception, the ATM’s invention cannot be traced to a single person or entity. Like so many other financial innovations, it emerged through a gradual process of trial and error to both reduce costs and accommodate changes in customer demands. Early “cash machines” were developed to help banks grapple with challenges they faced in the post-war era such as meeting the sharp rise in the use of checks amid a growing labor shortage. This shift in payment preferences created a need for banks to find innovative ways to reduce payment processing costs – a job the ATM was well-suited for.

The most illuminating insights of the book come in chapters four through six where the author discusses the development of the networks that were necessary to sustain the ATM in the 1970s and 1980s. These networks, Bátiz-Lazo stresses, mattered far more to the banking sector than the invention of the cash machine. By connecting machines at different banks and branches, this network-building explains how “the cash machine evolved into the ATM” that we know today. These chapters are arguably the most important for understanding how the development of the networks connecting early ATMs can inform our understanding of how more recent financial technologies, like mobile money and various other payment apps, can develop interoperable platforms capable of sharing information within and across borders.

After a concluding chapter that includes a discussion of the cultural impact of the ATM and recommendations for future research, the book concludes with a technical appendix detailing the greatest “technological and regulatory milestones” in automated banking. It is here that we see most clearly the author’s effort to situate his own scholarly contribution on the history of the ATM in the broader literature on financial innovation. As Bátiz-Lazo writes in the introduction, “[t]his book is as much about technological change in retail banking since the 1960s as it is an exploration of cash machines” (p. 5).

It is in this claim that readers might find the book wanting. Although the author deserves enormous credit for providing arguably the most detailed and exhaustive account of the development and evolution of the ATM, the book itself often focuses too narrowly on the ATM without fully explaining what policymakers today might learn from its evolution and rapid dissemination. Rather than providing what are, at times, excessive details on the origins of the cash machine, the project would have benefited from taking a more outward and forward-looking perspective at what the success of the ATM can teach us about future financial innovations.

The book would also benefit from a deeper discussion of the interaction between regulations and financial innovations. Although the topic of how regulations shape innovations is touched upon throughout, there is too little analysis of the all-important role that establishing an institutional environment that is conductive to new financial technologies plays in making these transformative innovations possible in the first place (Di Castri and Gidvani, 2014). In this respect, the author would be wise to include some discussion of some of the earlier research on the connection between regulatory environments and financial innovation, particularly in the U.K. where much of his early analysis takes place (see, for instance, White, 1984).

Lastly, I would have liked to see more discussion of how automation has led to more and better jobs — not fewer, as is so often argued — that enhance the efficiency of banks and improve the overall customer experience. Bátiz-Lazo rightly acknowledges the important role that ATMs played in reducing banking costs and disrupting the labor market in banking. But more attention should be placed on how the changes ushered in by the ATM helped contribute not only to the increased efficiency of the banking sector (since bank branches no longer needed as many tellers, they were able to hire and train more loan officers, etc., to improve the quality of their services), but also an increase in bank penetration and employment as banks could afford to open more branches (Bessen, 2015). Although the author does dedicate a brief discussion at the end towards this topic (pp. 250-256), the point deserves greater elaboration, particularly at a time when concerns about technological unemployment are running high.

All in all, Bátiz-Lazo should be commended for his tireless work and painstaking detail. Cash and Dash is an important contribution for historians and scholars of the unpredictable and often chaotic world of financial innovation. Although the book would have benefited from a more forward-looking perspective, it remains an essential contribution to the canon on the history of financial innovation.

 

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