cash machine essay

A Brief History of the ATM

How automation changed retail banking, an Object Lesson

Eyes glaze over when I mention my interest in researching automated teller machines. Yet after I explain why I think they're relevant, many people can easily recall personal anecdotes in which an ATM plays a central role: a chance encounter with a long-lost friend while waiting in a queue, or the fear of being robbed in an unfamiliar location, or the feeling of seeing an insufficient funds notice displayed on the screen.

Most urbanites have interacted with the ubiquitous "cashpoint." Paul Volcker, of the U.S. Federal Reserve fame, even considered it the "only useful innovation in banking." Cashpoints appear frequently on TV and in printed news because, for most consumers, they're one of the few points of contact with today's otherwise-ephemeral financial services.

In spite of their cultural significance, ATMs recede into the noise of everyday memory. Few stop to reflect on how they—and the computer infrastructure that supports them—became the backbone of contemporary retail payments.

The cash dispenser was born almost 50 years ago, in 1967. For many, this was the first tangible evidence that retail banking was changing; the introduction of the ATM marked the dawn of contemporary digital banking. Several lay claim to the invention of the cashpoint, including John Shepherd-Barron and James Goodfellow in the U.K.; Don Wetzel and Luther Simjian in the U.S.; and even engineering companies like De La Rue, Speytec-Burroughs, Asea-Metior, and Omron Tateisi. But the ATM is a complex technology. There was no single eureka moment that marked its arrival.

The ATM finds its origins in the 1950s and 1960s, when self-service gas stations, supermarkets, automated public-transportation ticketing, and candy dispensers were popularized. The first cash machine seems to have been deployed in Japan in the mid-1960s, according to a Pacific Stars and Stripes account at the time, but little has been published about it since. The most successful early deployments took place in Europe, where bankers responded to increasing unionization and rising labor costs by soliciting engineers to develop a solution for after-hours cash distribution. This resulted in three independent efforts, each of which entered use in 1967 : the Bankomat in Sweden, and the Barclaycash and Chubb MD2 in the U.K.

Cashpoints materialized thanks to a long chain of innovations. Some were of a general nature, such as steel, video-display units, plastic, magnetic tape, or (more recently) the Windows operating system. Others were purpose-made, such as the cash output mechanism and, in the 1960s, the previously non-existent algorithm that associated an encrypted PIN with a customer account. These components were developed through active collaboration between groups of bankers and engineers, each of which attempted to solve different aspects of the complex challenges inherent in the development of the ATM.

Never before had electronic equipment been so exposed to the elements. The necessity of human intervention in early systems invited further automation. For instance, they could easily jam or run out of product. They could erroneously dispense several bank notes instead of just one—all without the owner's knowledge. They were activated by plastic or paper tokens that would only activate for the operating bank and, in some cases, only that particular bank location. Some banks would keep the token in the machine and return it to the customer (by post) once the account had been debited. As a result, early ATMs were standalone, clunky, unfriendly, and inflexible. They could do one thing: dispense cash when activated by a token.

Given these constraints, it's not surprising that it took more than a decade for banks to deploy cashpoints beyond a handful of experiments. In its early days, few believed that the cashpoint would make a difference to the average consumer. In context, this prediction might have seemed sure; cashpoints appeared before credit or debit cards were a popular alternative to bills and coins, at a moment in time when most of the world's citizens worked in a cash economy. With the exception of the U.S. and France, even personal checks were largely limited to the wealthy.

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Updating central records from the point of a transaction is easy in today's world of mobile banking and e-commerce, but the cashpoint was one of the first devices to use real-time networking. Early in the ATM's development, creating a way to communicate with a central computer (and therefore inform customers of their account balances) became an overriding design concern. In cooperation with IBM, Swedish savings banks began testing a networked cashpoint in 1968. A collaboration between IBM and Lloyd's Bank followed, and that bank deployed several networked devices in the United Kingdom in 1973. But widespread online authorization still had a long way to go. Throughout the 1970s, IBM engineers developed the rails, pipes, and standards on which other elements of the payments ecosystem (such as credit cards and point-of-sale terminals) would eventually depend.

The ATM freed the average consumer from lengthy queues for services that had previously been limited to bank hours. As devices spread, this convenience steadily changed patterns of consumption, enabling unplanned weekend shopping and impromptu dining. At the same time, it allowed retail banks to grow their customer base by granting access to consumers who'd previously been excluded from using a current account or a credit card. The nature of work in bank branches also changed as employees relocated away from teller services and into sales. High-margin services and products like car insurance, credit cards, investment funds, and mortgages owe a debt to the outsourcing of ordinary banking to ATMs. But when such sales opportunities failed to materialize, banks also began to cut costs by reducing branch staff and closing down branches. This process continues even today, with so-called "branch transformation" remaining a hot topic in the industry .

Bank regulators across the world have actively shaped ATM technology by dictating who can own and operate them, monitoring the cost of withdrawals as well as where they can be physically located. But the average person has also influenced ATMs: the way they look, the way they work, and their role as a platform for today's plethora of balance inquiries, deposits, transfers, and (in some European countries) airtime top ups for pay-by-minute cellphones.

In 1971, a handful of years after the first machines appeared in England and Sweden, manufacturers were operating in Britain (Speytec-Burroughs), the U.S. (Docutel and Diebold), and Japan (Omrom Tateisi). Together, they deployed cash machines in their home countries and across Europe, Canada, Israel, Cyprus, and Latin America. However, by the early 1980s, pioneers such as Chubb, De La Rue, Docutel, and Asea-Metior had left the industry as each failed to keep up with developments in computing and electronics. Other manufacturers, such as Burroughs, hadn't achieved their deployment targets. Citibank abandoned plans to commercialize its proprietary CAT-1 and CAT-2 devices and, instead, continued to use them in its global, proprietary network until the 1990s.

Not so with IBM, which had the marketing muscle, engineering expertise, and business contacts to dominate the market. The company seemed poised to overwhelm its competitors until executives decided to deploy a new model—the IBM 4732 family—which were incompatible with previous models, including the already-successful and widely deployed IBM 3624. Many banks evaluated the machine and refused to buy it because, in a stroke, IBM had made the banks' significant capital investments in the older computer infrastructure obsolete. This obsolescence extended beyond the physical devices inside bank branches to the machines and software that supported communication across the bank's network, and even to standards for shared cashpoint networks. IBM's move soured banks, inadvertently, opening the ATM market to new cashpoint manufacturers. Eventually, IBM abandoned payment-technology systems entirely.

Around this time, two Ohio-based companies, NCR and Diebold, were working on technology that would enable them to dominate the supply of cashpoints for the next two decades. As a result of the IBM 4732 fiasco, NCR built its business on software that emulated the IBM 3624. Meanwhile, IBM and Diebold formed a joint venture in 1984, called InterBold. Its aim was to unite Diebold's self-service technology with IBM's global distribution system. Seven years later, and in spite of growing sales, the joint venture ended: Diebold hadn't achieved the international market breakthrough it'd hoped for and IBM's returns fell short of its expectations, in part due to the growth in local processing architectures, which had invalidated IBM's strategy to link ATMs to its expensive mainframes.

NCR and Diebold were instrumental in turning the cash-dispenser dinosaur into today's sleek, multi-function ATM. The companies' innovations included customer-friendly video display units, programmable buttons alongside the screen, a shift toward dispensing cash horizontally (which reduced jams), and expanded functionality, including money transfers and balance inquiries.

But NCR and Diebold were not alone. Growth in the number of banks deploying ATMs across the world promoted an increase in the number of manufacturers: Honeywell in the U.S.; Phillips, Olivetti, and Siemens-Nixdorf (today, Wincor) in Europe; and Fujitsu, GRG, Hyosung, and Hitachi in Asia. Large European banks also developed proprietary networks, numbering in the thousands of ATMs, which U.S. banks favored shared networks (and their subsequent interconnection fees).

Despite innovations in modular manufacturing, speedier ways to identify delinquent accounts, and the associated reduction in service costs, however, ATMs remained a significant capital investment. The use of dedicated telephone lines limited them to bank branches or high volume non-bank locations, such as busy train stations and big airports. This limitation finally lifted with the advent of digital telephony and the industry's adoption of the Windows operating system. These two seemingly simple modifications transformed the ATM, enabling remote diagnostics and integration with credit card clearance networks. They also enabled the advent of the Independent ATM Deployer (IAD)—ATM vendors unaffiliated with a major financial institution —and renewed growth in the machine's deployment in the late 1990s.

Still, not everything is rosy for the ATM industry. In a cost-reduction move in 2014, for instance, Chilean banks reduced the size of their ATM fleets (as well as the frequency of cash resupplies for existing machines) while encouraging the use of government-sponsored cash remittance networks in mom-and-pop retail stores. This move led to public outcry and anti-bank campaigns on social media. The success of mobile banking in Africa has also created doubt about the need to deploy ATMs in developing countries. Mobile banking and remittances—which alleviate the need for cash and bank branches in rural areas—offer the chance to increase financial inclusion in Africa, Asia, and Latin America while obviating the substantial investment required to install and maintain proprietary ATM networks. Despite these advantages, the fate of mobile banking and remittances, for many developing countries, remains uncertain .

From its humble and uncertain beginning nearly 50 years ago, the ATM has become pervasive. But it wasn't until the 1980s, more than 15 years after the machine's invention, that the ATM's success was assured. Today, we're asked for our PINs in libraries, on the Internet, and in every sort of retail store, for which debit cards have become the de facto currency. The near-total global integration of ATM networks means that we can travel almost anywhere in the world with just a piece of plastic in our pocket, confident that we'll have access to cash in places as far afield as Hong Kong, Easter Island, Giza, Paris, and even Antarctica. Some machines now act as Internet kiosks, while others display an advertising by third parties or allow users to purchase minutes for their mobile phones. Yet for all its digital innovations, the quick dispensing of physical cash remains the core, transformative function of the ATM.

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What Is an Automated Teller Machine (ATM)?

History of atms, types of atms, how to use an atm, using atms outside the u.s..

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The Bottom Line

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What Is an ATM and How Does It Work?

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Amanda Bellucco-Chatham is an editor, writer, and fact-checker with years of experience researching personal finance topics. Specialties include general financial planning, career development, lending, retirement, tax preparation, and credit.

An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs, either in the U.S. or other countries.

ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash withdrawals, bill payments , and transfers between accounts.

Fees are commonly charged for cash withdrawals by the bank where the account is located, by the operator of the ATM, or by both. Some or all of these fees can be avoided by using an ATM operated directly by the bank network that holds the account. Using an ATM abroad can cost more than using one in the U.S. due to exchange rates or transaction fees.

Key Takeaways

• ATMS, or automated teller machines, are banking outlets where you can withdraw cash without going into a branch of their bank.
• Some ATMs only dispense cash, while others allow transactions such as check deposits or balance transfers.
• The first ATMs appeared in 1960s and now number more than 2 million worldwide.
• Today’s ATMs are capable of accepting deposits as well as administering several other banking services.
• To avoid ATM fees, try to use an ATM by your own bank.

The first ATM appeared at a branch of Barclays Bank in London in 1967, though there are reports of a cash dispenser in use in Japan in the mid-1960s. The interbank communications networks that allowed a consumer to use one bank’s card at another bank’s ATM followed in the 1970s.

Within a few years, ATMs had spread around the globe, securing a presence in every major country. They now can be found even in tiny island nations such as Kiribati and the Federated States of Micronesia.

ATMs are also known automated bank machines (ABMs), cashpoints, or cash machines.

More than 4 million

Number of ATMs in use around the world.

There are two main types of ATMs. Basic units only allow you to withdraw cash and receive updated account balances.

The more complex machines accept deposits, facilitate line of credit payments and transfers, and access account information. To access the advanced features of the complex units, you often must be an accountholder at the bank that operates the machine.

You can now buy and sell Bitcoin and other crypto tokens via Bitcoin ATMs , Bitcoin ATMsare internet-connected terminals that will dispense cash in return for crypto. They may also accept cash or credit card to purchase crypto. There are now more than 28,000 Bitcoin ATMs located around the world.

ATM Design Elements

The design of each ATM may be different, but they all contain the same basic parts:

• Card reader : This part reads the chip on the front of your card or the magnetic stripe on the back.
• Keypad : The keypad is used to input information, including your personal identification number (PIN) , the type of transaction required, and the amount of the transaction.
• Cash dispenser : Bills are dispensed through a slot in the machine, which is connected to a safe at the bottom of the machine.
• Printer : If required, you can request receipts that are printed out of the ATM. The receipt records the type of transaction, the amount, and the current account balance.
• Screen : The ATM issues prompts that guide you through the process of executing the transaction. Information about accounts and their balances is also transmitted on the screen.

Full-service machines often have slots for depositing paper checks or cash.

To use an ATM, you typically insert your bank cards and follow the prompts to withdraw cash, which is dispensed through a slot. ATMs require you to use a plastic card—either a bank debit card or a credit card—to complete a transaction. Your identity is authenticated by a PIN before any transaction can be made.

Many cards come with a chip, which transmits data from the card to the machine. These work in the same way as a bar code that is scanned by a code reader.

Banks place ATMs inside and outside of their branches. Other ATMs are located in high-traffic areas such as shopping centers, grocery stores, convenience stores, airports, bus and railway stations, gas stations, casinos, restaurants, and other locations.

Most ATMs in banks are multifunctional, while off-site ATMs are generally only for cash withdrawals.

Account holders can typically use their bank’s ATMs at no charge, but an ATM owned by another bank usually charges a fee. According to MoneyRates.com, the average total fees to withdraw cash from an out-of-network ATM was $4.55 in 2022. Some banks will reimburse their customers for the fee, especially if there is no corresponding ATM available in the area.

ATM fees can add up for users who make withdrawals regularly. For example, if you make weekly withdrawals at an ATM that charges $4 and is not from your bank, you would pay more than $200 a year in ATM fees.

ATMs make it easier for you to access your checking or savings accounts from almost anywhere in the world when you travel.

Travel experts recommend using foreign ATMs as a source of cash abroad, as they generally receive a more favorable exchange rate than they would at most currency exchange offices.

However, the accountholder’s bank may charge a transaction fee or a percentage of the amount exchanged. Many ATMs don't list the exchange rate on the receipt, making it difficult to track spending.

How Much Can You Withdraw from an Automated Teller Machine (ATM)?

The amount that you can withdraw from an automated teller machine (ATM) per day, per week, or per month will vary based on your bank and account status at that bank. For instance, some banks limit daily cash withdrawals to $300. But most Citibank accounts allow up to $1,500, depending on your account. You may be able to get around these limits by calling your bank to request permission or upgrading your banking status by depositing more funds.

How Do You Make a Deposit at an ATM?

If you are a bank’s customer, you may be able to deposit cash or checks via one of their ATMs. To do this, you may simply need to insert the checks or cash directly into the machine. Other machines may require you to fill out a deposit slip and put the money into an envelope before inserting it into the machine. Be sure to endorse the back of any checks and note “For Deposit Only” to be safer.

Which Bank Installed the First ATM in the U.S.?

The first ATM in the U.S. was installed by Chemical Bank in Rockville Center (Long Island), New York, in 1969 (two years after Barclays installed the first ATM in the U.K.). By the end of 1971, more than 1,000 ATMs were installed worldwide.

ATM, or automated teller machine, is a machine that lets you get cash from your bank account without visiting a teller. Some ATMs are simple cash dispensers, while others allow a variety of transactions such as check deposits, balance transfers, and bill payments. Before you make a withdrawal, make sure you understand what fees you will have to pay.

Wise. " Using ATMs Abroad: How To Avoid Unfair Exchange Rates and Hidden Fees ."

Barclays. “ From the Archives: The ATM Is 50 .”

The Atlantic. “ A Brief History of the ATM .”

The World Bank, World Bank Open Data. “ Automated Teller Machines (ATMs) (Per 100,000 Adults) .”

ATM Marketplace. “ 50 Little-Known Facts About ATMs .”

BankBazaar. " ATM Machine ."

Coin ATM Radar. “ Bitcoin ATM Installations Growth (United States) .”

Chase. " Can You Deposit Cash at an ATM ?"

Navy Federal Credit Union. " Forget the Fees: Don't Pay Extra for Your ATM Transactions ."

Citibank. " Compare Benefits: Options to Fit Your Needs ."

NCR. “ A History of ATM Innovation .”

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Home — Essay Samples — Economics — Credit Card — Cash vs. Credit Card: A Comprehensive Comparison

Cash Vs. Credit Card: a Comprehensive Comparison

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Published: Sep 7, 2023

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• Cash Machine

A collection of business models that will help you understand the key drivers of business model success. The card deck will be ready for purchase in the end of 2023 and is now undergoing rigorous testing.

The Cash Machine pattern involves operating a company with a negative cash conversion cycle, whereby revenue is generated more quickly than payments to suppliers for goods are required. This model is generally not visible to customers, but has significant implications for the business.

By running a negative cash conversion cycle, a business can generate additional liquidity that can be used for a variety of purposes, such as paying off debts or making new investments. This can help the company reduce its interest payments or accelerate growth.

To achieve a negative cash conversion cycle, there are two key levers to consider. First, the business should aim to secure generous payment terms with suppliers. Second, it is important to ensure that customers pay promptly. A build-to-order strategy or very short stock turnover time can also help to realize this goal by minimizing the time that goods spend in inventory.

Where did the Cash Machine business model pattern originate from?

The Cash Machine pattern has a long history, dating back to the use of cheques as a non-cash form of payment. When a cheque is written, the bank acts as an intermediary between the person writing the cheque (the drawer) and the person receiving the money (the payee). The bank collects the funds from the drawer and then issues them to the payee when the cheque is cashed. This creates a negative cash conversion cycle for the bank, as it is able to generate revenue before having to finance any expenses.

Cheques gained popularity in Europe in the early 14th century, as the economic boom of the time increased the need for non-cash payment methods among traders. Another example of the Cash Machine pattern can be found in the development of the traveller’s cheque by American Express (AmEx) in 1891. The idea for this product came about when an AmEx employee traveling abroad struggled to obtain cash. The first traveller’s cheque was cashed on August 5, 1891 by William C. Fargo, nephew of AmEx co-founder William G. Fargo, in Leipzig, Germany.

Applying the Cash Machine business model

The Cash Machine pattern can be highly effective for businesses that operate on a build-to-order basis or have secured favorable payment terms with suppliers. By receiving payments for services rendered as quickly as possible and delaying payments to suppliers as long as possible, a company can generate additional liquidity that is available for use at its discretion. This model is only viable if the business’s offerings are perceived as having high value by customers, such as through an online build-to-order process.

One example of the success of the Cash Machine pattern is Dell, which was able to leverage this model to great effect. Another option is to combine the Cash Machine pattern with the Subscription pattern, whereby customers pay upfront but receive products or services at a later date.

Trigger Questions

• How can you make a build-to-order process beneficial to the customer?
• Can you postpone completion of products until they have been paid for?
• Is it possible to renegotiate contracts with suppliers?
• Can we delay the completion of our products and services until they have been paid for?
• How would Dell manage our business?

As customers buy vouchers or coupons up front, Groupon collects customer payments immediately, but pays businesses later.

Processing payments for its vendors, PayPal holds money until asserted genuine and requested for transfer to the merchant.

Dell was the first company in the field of information technology to utilize a build-to-order strategy in the 1980s, allowing it to achieve a highly negative cash conversion cycle and finance its growth. When the company was founded in 1984, its founder Michael Dell had only $1,000 in seed capital, so large investments or a costly inventory could have resulted in bankruptcy.

Amazon is another company that effectively employs the Cash Machine pattern. It typically realizes a negative cash conversion cycle for 14 days by ensuring a rapid turnover of inventory and negotiating generous payment terms with suppliers. This allows Amazon to delay payments to suppliers until it has been paid by customers for the goods they have purchased.

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• Business Model Navigator by Karolin Frankenberger and Oliver Gassmann
• What Is Cash Conversion Cycle? Amazon Cash Machine Business Strategy In A Nutshell by Gennaro Cuofano

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Automated teller machine (ATM): What it is and how to use one

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An automated teller machine (ATM) is a specialized computer that allows you to complete bank transactions without the need of a bank representative. Many ATMs are conveniently accessible any time of day or night and can be used for everything from withdrawing or depositing money to checking your account balance to transferring money between accounts.

Here we’ll delve deeper into what an ATM is, common transactions performed at ATMs and important things to know before using them.

Key takeaways

• An ATM is a machine that allows you to withdraw money, deposit cash or checks, view your balance or transfer money between accounts.
• Many ATMs are accessible around the clock and eliminate the need to see a bank teller for transactions.
• It pays to avoid ATM fees by only using ATMs in your bank's network.

What is an ATM?

ATMs are machines that dispense cash and allow you to make other banking transactions. An ATM typically consists of a screen, a card reader, a keypad, a cash dispenser and a printer.

ATMs can be found in many locations throughout the U.S. and the world. On-premise ATMs are located at financial institutions such as banks and credit unions , while off-premise ones are commonly offered at places like airports, grocery stores and gas stations.

Using an ATM simply involves inserting your bank-issued ATM card, entering your personal identification number (PIN) and following the prompts on the screen to complete your desired transaction.

ATMs debuted to the public in the 1960s, and Barclays lays claim to unveiling the world’s first ATM at a branch in London in 1967. The first ATM in the U.S. started dispensing cash in 1969 to customers of Chemical Bank in New York. By the end of 2022, more than 450,000 ATMs were operating in the country, according to data from research firm Euromonitor International.

Examples of ATM transactions

Various common banking transactions that are often carried out at an ATM include:

Withdrawing cash

The most common ATM transaction is the withdrawal of funds from one’s account. Banks typically impose limits on the maximum amount that can be taken out each day. This amount can vary from bank to bank, as well as among different accounts offered by a single bank.

Depositing money

Account holders can often use an ATM to deposit cash or checks. When making this type of transaction, you’ll be asked to insert the funds into a slot in the machine. When money is deposited in the form of a check, the bank sometimes might not provide you with access to the funds until the check has cleared.

Transferring funds

You may be able to use an ATM to transfer money between accounts you hold with your bank. For instance, if you wish to transfer $200 from your savings account to your checking account, this can often be done by selecting the “transfer” option at the ATM. Like balance inquiries, transferring funds between accounts is also something you can accomplish using your bank’s mobile app or website.

Balance inquiries

You can also visit an ATM to view your current account balance. This feature may come in handy if you wish to know how much you’re able to spend when using your debit card or writing a check . Alternatively, your account balance is something you can view by logging onto your bank’s mobile app or website. Knowing your balance can help you keep from overspending or overdrawing your account .

Some banks also allow customers to use ATMs to see a small list of their recent transactions (although viewing your entire account statement isn’t usually an option).

What to watch out for with ATMs

Using an ATM that’s not owned by your bank, or one that’s not in your bank’s network, may result in fees imposed by both your bank and the bank that owns the ATM. The combined average fee is currently at a record high of $4.73, according to Bankrate’s 2023 checking account and ATM fee study .

Ways to avoid ATM fees include only using ATMs in your bank’s network and requesting cash back when you make purchases at a grocery store or other retailer.

ATM withdrawal limits

As we’ve mentioned, banks impose limits on the amount of funds you can withdraw at an ATM each day. This can help curb fraud in the event someone has possession of your ATM card and knows your PIN. What’s more, limiting the amount per withdrawal allows the bank to manage cash movement, since each ATM only holds a limited amount of money.

Location and safety

Ways to avoid becoming a victim of crime when using an ATM include using machines that are located in well-lit public places. Use your hand or body as a shield when entering your PIN to prevent others from seeing you type it. Once you receive your cash, instead of counting it at the ATM, wait until you’re in a more private location — such as your car — to do so.

Bottom line

ATMs often conveniently provide access to cash on a 24/7 basis, without the need to see a teller or other bank representative. They also commonly offer the ability to deposit funds, check your balance and transfer money between accounts. ATMs make your cash more accessible and are quick and easy to use, once you’re aware of things like withdrawal limits and ways to avoid paying out-of-network fees.

Related Articles

Capital One Bank near me: Find branches and ATMs close by

Daily ATM withdrawal limits: How much money can you take out?

PNC Bank near me: Find branches and ATMs close by

Cardless ATMs: How they work, top pros and cons

EssayEmpire

Cash management essay.

In the United States, cash management is actually viewed as a marketing term to describe how businesses promote services to their large customers. When looking at this concept from an international perspective, one could define international cash management as the services provided in the international banking arena to support growth and development of multinationals and developing countries.

As more financial institutions begin to participate in the global economic system, process improvement has led to the reduction of communication and information costs as a result of technology. One of the focal points for many multinational corporations is to have the ability to perform financial transactions outside the United States. It is important for these corporations to have the ability to participate in the international trade process. Some of the key banking services that are needed include letters of credit, wire transfers, collections, and foreign exchange. It is important for an organization to have the ability to wire deposits in a timely manner, have the credibility for banks to provide a letter of credit on its behalf, and collect payments quickly and easily.

Technology has made it possible for financial institutions to offer electronic banking to their customers. Electronic banking, also known as electronic fund transfer (EFT), uses technology as a substitute for checks and other forms of paper transactions. Customers find the service beneficial for several reasons:

• Automated teller machines (ATMs): ATMs are electronic terminals that allow consumers to have access to their funds at any time. Financial institutions provide their customers with a card, which allows them to withdraw money from these machines as well as complete other transactions.
• Direct deposit: Many employers have mandated that employees have their payroll directly deposited into a checking or savings account. Once the funds reach the bank, the bank processes the transactions so that their customers will have access to the funds on the morning of their pay date.
• Pay-by-phone systems: A benefit to consumers is when their banks allow them to pay their bills by calling in the transactions and transferring funds between accounts.
• Personal computer banking: Given the use of technology, many consumers will base their banking selection on whether or not they can perform transactions online using their personal computers.
• Point-of-sale transfers: Consumers can use their ATM cards in many stores to purchase retail items. This process is similar to using a credit card, but the funds will come out of a checking account.
• Electronic check conversions: There are times when a consumer may write a check at a merchant’s business and the transaction will become an electronic payment at the point of sale.

With the rise of electronic banking’s popularity, financial institutions and consumers must be cautious and protect information that is considered private and privileged. In order to avoid a compromised situation, financial institutions must develop techniques that will assist in authenticating online banking users.

Bibliography:

• Fest, “Double E-Signatures Double the Security,” U.S. Banker (v.117/2, 2007);
• Large and W. Large, “Back to Basics: Integrating the Domestic Into the International,” in The 2008 Guide to Technology in Treasury Management (Euromoney, March 2008);
• Large and W. Large, “International Cash Management Review: Global Solutions to Fit All Sizes,” in The 2008 Guide to Technology in Treasury Management (Euromoney, March 2008);
• Neville, “After the Crash, Here Comes CASH: Why the World’s Biggest Banks Want More From Cash Management,” Euromoney (v.38/462, 2007).

Caterpillar

Employing nearly 100,000 people all over the world, Caterpillar Inc. is the world’s largest manufacturer of equipment for the construction and mining industries, as well as manufacturing turbines and engines. The characteristic yellow paint scheme of much of their equipment is as familiar to people in regions where those industries are dominant as are John Deere green and Coca-Cola red. A Fortune 500 company since the list’s inception in 1955, it was ranked 50 in 2008, the most recent ranking. As the leader in its industry, it has been one of the 30 companies of the Dow Jones Industrial Average since 1991.

The innovation with which the company is associated, and has been since its inception, is the caterpillar or continuous track. Such tracks, used instead of wheels, are made of rigid plates connected to each other in a belt, laying flat on the ground as the vehicle moves forward. This allows for a much more efficient distribution of weight, significantly reducing the ground pressure of the vehicle. Caterpillar tracks are most associated with vehicles too heavy to use wheels like cars—such as tanks and construction equipment. Early attempts at making a useful continuous track often referred to them as a type of rail, but unlike rails, they allow for more flexibility of movement, remain with the vehicle, and do not need to be laid down ahead of time. The idea of the continuous track had been in circulation since the 18th century, and became the focus of various inventions during the Industrial

While Caterpillar equipment like this is sold in 200 countries, the U.S. market still makes up half of the company’s sales.

Revolution when there was more and more demand for heavy vehicles for which wheels were inefficient or simply unusable.

The first effective model was patented in 1901 by Alvin Lombard, for use with steam-powered log haulers. Two years later, the Holt Manufacturing Company paid Lombard’s fees for the right to manufacture equipment using his patented tracks, and subsequently purchased a later British continuous track patent, which included a steering mechanism similar to what’s in use today. The designs were combined, the term caterpillar track was trademarked, and the Holt Manufacturing Company became the Caterpillar Tractor Company in 1925, through a merger with the C.L. Best Gas Traction Company. Holt tractors using caterpillar tracks were used during World War I, to tow artillery, and the tracks were soon adopted for military tanks.

The Industrial Revolution had permanently changed farming, not only by encouraging larger-scale commercial farms, but by revolutionizing the farm equipment industry. The construction industry was just as affected, and the rise of skyscrapers and other modern building types necessitated the widescale manufacture of equipment. Caterpillar adapted to changing technologies, including the shift to internal combustion engines and diesel engines, and expanded rapidly to meet the construction and manufacturing boom following World War II. Its overseas ventures began in 1950, and it has continued to operate multinationally since. Acquisitions of other companies have fueled Caterpillar’s expansion, sometimes into other countries—Hindustan Motors Earthmoving Equipment Division was acquired and renamed Caterpillar India in 2000—and sometimes into new product lines, as with Barber Green (Caterpillar Paving Products since 1991), Elphinstone (Caterpillar Underground Mining since 2000), the acquisitions of many engine and engine component manufacturers, and the 2008 acquisition of LOVAT, a manufacturer of tunnel boring machines. Caterpillar products were responsible for the construction of the Hoover Dam, the tunnel under the English Channel, and the U.S. interstate highway system.

In the 21st century, Caterpillar’s products are sold in 200 countries, with about half of its sales accounted for in the United States. Caterpillar dealerships are independently owned and operated, and each dealer has exclusive rights to a given geographical area. Repair and maintenance services are offered by the same local dealerships. Caterpillar’s 400 vehicles constitute the bulk of its products, and those for which it is best known, and include both tracked and wheeled vehicles, for construction, excavation, and heavy transport. Many of the engines used in Caterpillar’s vehicles are of its own manufacture, and are also sold to other companies for use in locomotives, trucks, and generators.

• Ilan Brat, “Caterpillar Enters Navistar Truck Venture,” Wall Street Journal (June 13, 2008);
• “Caterpillar Exits Engine Business, Enters Work-Truck Market,” ENR: Engineering News-Record (v.260/21, 2008);
• Tim Kelly, “Squash the Caterpillar,” Forbes (v.181/8, 2008);
• Jason Leow, “In China, Add a Caterpillar to the Dog and Pony Show,” Wall Street Journal (December 10. 2007);
• Qontro Business Profiles, Caterpillar Inc. (Qontro, 2008).

This example Cash Management Essay is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.

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Guest Essay

What the Fight Over the Capital One-Discover Merger Misses About Our Terrible Credit Card System

By Aaron Klein

Mr. Klein served as deputy assistant secretary of the U.S. Treasury from 2009 to 2012.

A fight has commenced over Capital One’s effort to acquire Discover, a deal that would birth an enormous credit card company rivaling Visa, Mastercard and American Express. The resulting competition could, in the short run, lower some costs to businesses and consumers. However, over the longer term, the merger would keep intact the broken and predatory system in which credit card companies profit handsomely by rewarding our richest Americans and advantaging the biggest corporations.

Credit card companies increasingly generate money via swipe fees, or the money merchants pay issuers every time a credit card is used. Total swipe fees rose 20 percent in 2022 to an estimated $160 billion a year nationally. The pandemic changed how we buy things, significantly increasing the share of transactions put on credit cards rather than conducted in cash, adding to the swipe fees merchants pay.

On top of this, a 2018 Supreme Court ruling effectively forces merchants to accept either every type of card — from, say, a basic Green Card to the Platinum Card — from an issuer like Amex or none of them. And even though fancier types of cards generally demand higher swipe fees, the ruling also barred merchants from incentivizing consumers to use the cheaper ones. These facts combine in a way that makes it even more appealing for Capital One, a giant credit card issuer, to merge with Discover, which owns a payment system, and generate greater profits from credit cards, particularly higher-end reward cards.

Your Rewards Card Is Actually Bad for You, and for Everyone Else

Chasing credit card points is a game in which everyone loses..

This is a story about you and your favorite credit card, the one that earns you points. You use your card for everything. You pay off your balance every month. And you watch with glee as your rewards grow and grow and grow. And when it’s time to cash in, you announce that you’re going to get a family gift. And each member will get one vote. And then your daughter argues that the family needs another iPad. And your son has fallen in love with the ugliest garden gnome that you’ve ever seen. And so to break up the skirmish, you decide that you’ll be getting the frying pan. Because what brings the family together more than food? Marty is the answer. But let’s keep him out of this. And when they complain and say, “But that’s not what I wanted,” you look them in the eye and say, “This was never about you.” “It’s about us, all of us.” And then two weeks later your frying pan arrives. And you can’t help but smile because you kind of did get this for yourself, though you’ll never admit it. And you’re looking at the frying pan. And it’s staring at you and you at it and it at you and you at it. And you just have this split second where you think to yourself: Who actually paid for this? Who pays for all of this? Well, if you love your rewards card, then you’re probably not going to like the answer. Because you try to be a good person, you shop locally. And each week you buy, let’s say, $100 in groceries from MJ. When you swipe your card, that $100 doesn’t go straight to MJ. Instead, store owners are charged a series of fees, the largest of which is called the swipe fee. It’s set by the card network, usually Visa or Mastercard. And your bank uses it to pay for your rewards. The swipe fee is usually between 1.5 percent and 3.5 percent of your total. The more premium your credit card, the more that MJ is charged. Now, that might not sound like much. But it can add up. For small businesses like MJ’s, swipe fees can be one of their biggest expenses. And small stores like hers get charged higher rates than big-box competitors. In order to cope, store owners like MJ raised their prices. That means that all of us are paying more. But only those who have special cards are getting rewards. And here’s the catch: The wealthiest Americans tend to have the best cards that give them the most rewards, while poorer Americans are more likely to pay in cash or debit with no rewards or benefits. So what we really have is a system that forces everyone to pay higher prices in order to subsidize rewards that primarily go to the wealthy. So this rewards card, it’s really a screw-over-poor- people card. Every time you use it, you’re contributing to inequality, helping to drive up prices and further squeeze the most cash-strapped Americans, all so that you can get that free frying pan. You’re probably not benefiting from rewards as much as you thought. In 2020, the Federal Reserve found that the average American at every income level loses more to swipe fee price hikes than they earn in rewards. And of course, the poorest Americans are still getting handed the worst deal. On average, they pay five times more in price mark-ups than they’ll ever receive in rewards. Why are we stuck in this system? Why are swipe fees in the U.S. nine times higher than they are in Europe? Why do we have to pay so much just to pay? Well, it’s largely thanks to two companies, Visa and Mastercard. This system is their core business. It’s what they do for a living. And, sure, they’re providing a service and deserve to earn a profit. But these two companies control over 80 percent of the credit card market. With scant competition, Visa and Mastercard have faced little pressure to rein in swipe fees. The truth is for the vast majority of Americans, the best deal might not come in the form of a new piece of plastic but instead a new piece of legislation. That’s because Congress has the power to regulate swipe fees. In fact, in 2010, they did just that for debit cards. Remember the swipe fee on that $100 grocery purchase? If you paid with a debit card, it would have only cost MJ 26 cents. Dick Durbin, the senator who helped crack down on swipe fees for debit cards, has authored a bipartisan bill that would use competition to drive down credit card swipe fees. But the banks and credit card companies are, of course, pushing back. Right now, there are two things that you can do. First, call your senator and encourage them to support this bill. You can go to this website to find their number. Second, if you’re shopping at a small business that you want to support, remember that how you pay can make a difference. Using your debit card can save small businesses a lot in swipe fees. But the best solution might be elsewhere in your wallet. Increasingly, small businesses are offering discounts for cash payers. Avoiding this predatory system can be a win for both of you. And if those rewards are just too good to say goodbye to, well, then at least don’t go around telling people that you’ve never taken a handout, because you have. And the working class is paying for it. [MUSIC PLAYING]

Credit card companies found they could command ever-greater swipe fees from merchants while at the same time offering their wealthiest consumers more deluxe credit cards that reward big spending with cash back, travel points, access to fancy airport lounges and the like — and then pass on the cost of those rewards to merchants. Merchants must then choose whether to accept and pay the higher swipe fee demanded by these platinum expensive cards or not take any from that card company. In our increasingly digital economy, most merchants have little alternative but to accept the pricey versions and to pay for the privilege. Naturally, merchants pass on their increased cost to all of their customers.

That’s how the rest of us, whether we pay with cash, a debit card or a middle-of-the-road credit card, wind up paying more — because we are subsidizing these rewards cards for whom only the wealthiest qualify. One study from economists at the Boston Federal Reserve estimated that the highest-income households profit over $1,000 a year tax-free from the payment system, adjusted for inflation .

Because swipe fees include a fixed cost in addition to a percentage of the total cost, small-dollar transactions are extremely expensive for merchants. My research found huge costs for such transactions as buying a cup of coffee or paying for a bus or subway ride. One year my oldest friend’s small coffee shop paid more in card processing costs than for coffee beans.

Big companies can leverage their resources to lower swipe fees, giving them a leg up. Starbucks stole a page from the credit card playbook and built an app that gives consumers rewards on future purchases if they upload larger amounts of money from their credit cards, thus lowering the total fees Starbucks has to pay the credit card companies for each swipe.

Some big businesses negotiate discounted swipe fees. Costco is the most aggressive; there have been reports that the big discount retailer’s contract with Citibank and Visa lowered its costs to 0.4 percent while a local dry cleaner may be paying closer to 3 percent.

The problem isn’t limited to nonwealthy consumers and small businesses: Parking meters that used to run on coins now rely on credit-card-powered apps, which charge transaction fees that can be over 20 percent, such as 45 cents on $2. Public transit agencies can lose 7 percent of the money they generate in fares in card-processing fees. A growing gap between what users pay and local agencies receive could stress budgets and require higher taxes, increased fees or reduced public services.

To fix the problem, Congress should legislatively correct the Supreme Court’s mistake. For starters, give merchants the power to reject the priciest credit cards, and let’s see if their users are willing to pay the true cost of their rewards. This solution ought to have some bipartisan support; the idea was strong enough politically to be supported by states as diverse as Ohio, Texas and Maryland. Bipartisan legislation to overturn a conservative Supreme Court ruling may sound like a pipe dream, but in payments policy we’ve seen a few examples such as the Durbin Amendment to what became the Dodd-Frank Act, which lowered debit interchange fees, received 64 votes (including 16 from Republicans) in the Senate and made it into law.

Second, brave policymakers could start taxing reward points. The richer you are, the more likely you qualify for bigger rewards. Progressive taxation rates mean that exempting rewards from taxation makes them nearly four times as valuable to those in the top tax bracket as the bottom. Why is interest from my savings account taxed, but the cash back from card spending not? Once upon a time the value of frequent flier miles was hard to quantify; now the Points Guy has it down.

Finally, we could require all merchants have access to the same swipe-fee pricing, regardless of size. Why should the payment system give big business another advantage? The electronic cash register should not tilt the playing field.

Our payment system’s problems will not be solved by allowing or stopping a combination of Capital One and Discover. Adding a fourth major issuer to compete with the big three will make little difference if the system’s rules remain the same. Capital One already seems to be competing with American Express for wealthy customers who like elite airport lounges and big travel perks, which are funded in part from higher swipe fees. The rewards have kept getting richer over the past 20 years. Simply adding one more company to earn large profits through the existing system will hardly stop it.

Blocking the merger will fail to change the payment system that continues to drive greater rewards to those with the most money already, paid for by merchants and consumers who use cash, debit or lower-tier cards because they are not rich enough to qualify. As the economy continues to digitize with more micropayments, the credit card burden will keep growing, particularly on smaller businesses. Today’s large banks and payment companies will make more profit, sharing it based on who qualifies for elite status.

Until legislators are willing to change a system that showers tax-free rewards on the upper middle class, the cash register will continue to exacerbate the wealth gap and help big business get even bigger. It may feel great to stand up against a merger and fight those “big banks” — while enjoying a “free meal” at an exclusive airport lounge before taking a vacation using frequent flier miles. But if victory is more of the status quo, then the biggest losers will be those the government should protect the most.

Aaron Klein is a senior fellow at the Brookings Institution. He served as deputy assistant secretary of the U.S. Treasury from 2009 to 2012.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips . And here’s our email: [email protected] .

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