A Stochastic Game Theoretic Model for Expanding ATM Services

Abstract

ATMs aim to extend essential banking services such as cash withdrawal and deposit beyond the working hours of a bank's branch. However, ATMs incur a significant significant cost overhead in the form of capital and operational costs. The problem of ATM location is further complicated as customers of one bank can use their debit cards at any other bank's ATMs. While this might attract charges, some banks often refund these charges to attract customers. Banks need to have a mechanism to quantitatively measure the benefits of managing their own ATM versus paying for services rendered to it's customers by other banks through their ATMs. Game theory is the study of strategic decision making and is an effective technique to identify the best business strategy when provided with multiple options. In this paper we propose a game theoretic model based on stochastic games to identify the best strategy to be adopted by banks for their ATM expansion. We further propose an algorithm to identify the idle locations where a bank should place an ATM should the result of the ATM game recommend that the bank should establish it's own ATM.