EH.net is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

Cash and Dash: How ATMs and Computers Changed Banking

Author(s):Bátiz-Lazo, Bernardo
Reviewer(s):Burns, Scott A.

Published by EH.Net (June 2019)

Bernardo Bátiz-Lazo, Cash and Dash: How ATMs and Computers Changed Banking. Oxford: Oxford University Press, 2018. xiv + 324 pp. $75 (hardcover), ISBN: 978-0-19-878281-0.

Reviewed for EH.Net by Scott A. Burns, Department of Economics, Troy University.

 
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.

References:

Bessen, J. (2015). Learning by Doing: The Real Connection between Innovation, Wages, and Wealth. New Haven: Yale University Press.

Di Castri, S. and Gidvani, L. (2014). “Enabling Mobile Money Policies in Tanzania: A ‘Test and Learn’ Approach to Enabling Market-led Digital Financial Services.” GSMA.

White, L. H. (1984). Free Banking in Britain Theory, Experience and Debate, 1800-45. Cambridge: Cambridge University Press.

 
Scott A. Burns is an assistant professor of economics at the Manuel H. Johnson Center for Political Economy at Troy University. His most recent publications focus on the mobile money revolution in Sub-Saharan Africa and the impact of the Dodd-Frank Act on bank expenses in the United States.

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2019). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

JSTOR: A History

Author(s):Schonfield, Roger C.
Reviewer(s):Kurtz, Royce

Published by EH.Net (October 2003)

Roger C. Schonfield, JSTOR: A History. Princeton, N.J.: Princeton University Press, 2003. xxxiv + 412 pp. $29.95 (hardback), ISBN: 0-691-11531-1.

Reviewed for EH.Net by Royce Kurtz, Head of Reference, J.D. Williams Library, University of Mississippi.

JSTOR: A History is not a modest book. Few nonprofit enterprises warrant a history when they are less than ten years old. Even fewer infant organizations dare to declare themselves successful when their mission is to store knowledge in perpetuity. JSTOR is the story of an excellent idea with even better unintended consequences that succeeded because its sponsor was a powerful man with monetary resources and well-placed friends. While the very antithesis of the Cinderella tale, JSTOR is still a fascinating read as one is given an inside look in how the educational elite can bring money and skill together to create a successful electronic business in the midst of the .com crash.

William G. Bowen, the book’s hero, is a man of distinction. When the story of JSTOR begins in 1993, Bowen was president of the prestigious Andrew W. Mellon Foundation, a nonprofit that had already given millions in grant money to higher education. He was a nationally recognized economist specializing in nonprofits, an emeritus president of Princeton University, and a member of the Board of Trustees of Denison College, a selective, small liberal arts college in Ohio. Denison needed to build a new library, the old one having reached capacity. Upon surveying the library, Bowen realized that by digitizing the long runs of old journals much space could be freed up and the need to build a new library postponed. As college and university libraries all held virtually the same set of core journals, the aggregate space savings, and hence financial savings, of delaying library construction by means of digital collections would ripple across higher education. Bowen took his idea back to the board of trustees at Mellon, and they immediately funded a pilot project.

Roger C. Schonfeld, the author, is a research associate at the Mellon foundation. He has access to the Foundation’s files and interviewed high level participants in order to give readers the feel of being in the know as events unfolded. While Schonfeld occasionally points out the naivete of Bowen and his colleagues when approaching technological and legal hurdles, the Mellon Foundation and its leaders never come in for harsh criticism. Theirs is a story of sound judgement, wise use of resources, and impeccable timing with a dash of good luck. In order to succeed, adept administrators were needed as well as large and timely cash flows. Bowen supplied both. While maintaining close ties with his project, Bowen also lined up Kevin Guthrie to officially head up the operation and pilot JSTOR (the name of Bowen’s computer file for the project) to the status of an independent nonprofit. Guthrie had worked on Mellon Foundation projects before and was well known to Bowen. In the end it was Guthrie’s managerial skills and Bowen’s strategic appeals to the Mellon Board for money that kept the young project moving forward.

Two huge problems had to be overcome for the project to begin. First were the technological problems of scanning millions of pages, providing hardware and software sufficient to store, search, and quickly deliver the product to thousands of locations worldwide. Second were the legal problems of gaining copyright permission from dozens of journal publishers in order to digitize their back files. While few journal publishers make money from their back files, all were cautious about signing away the rights. Technology issues were resolved as Bowen contacted his good friend, the president of the University of Michigan, who found a home for the fledgling program in the university’s major and innovative digitization efforts. Michigan engineers and computer scientists worked on perfecting software for JSTOR, and Michigan staff organized the journals for scanning by a private company. Many of the journals that JSTOR wished to scan were published by either university presses or scholarly associations. Bowen’s friendships among university presidents got JSTOR’s lawyers a favorable hearing from these publishers.

When it came time to market JSTOR to university libraries, Bowen again called on University presidents, not library directors, in order to sell the product. It is not surprising that virtually all of JSTOR’s first customers were large university research libraries. The journal titles that JSTOR had digitized would make virtually no impact on these libraries’ storage problems. Indeed JSTOR’s success came, not primarily from solving storage concerns, but by providing easy access to the long back files of a bundle of essential scholarly journals.

Schonfeld provides lengthy descriptions of the ins and outs of setting up a nonprofit enterprise. Librarians and academic administrators, who are struggling with how to pay for electronic products, will find the details of how JSTOR arrived at its value pricing model fascinating. As a nonprofit associated with the Mellon Foundation, JSTOR developed different marketing and pricing models for unique customers, such as the Appalachian Colleges Association. Libraries outside the United States and library buying consortia also proved to be challenging markets. Schonfeld also provides details on production operations, establishing business models for nonprofits, and the politics of the nonprofit world of higher education. Schonfeld is a great story teller; his book skillfully intertwines the specifics of setting up a scholarly nonprofit enterprise with the larger intellectual issues of scholarly communications and the economics of the nonprofit sector. JSTOR: A History is a must read for economists interested in nonprofits and for librarians (or anyone else) interested in where college and university library collections are headed.

Royce Kurtz received a Ph.D. from the University of Iowa in anthropology, specializing in frontier interactions between Euro-Americans and native Americans. He is currently the bibliographer for history and the social sciences at the University of Mississippi libraries. He has published in both the fields of history and library science.

Subject(s):History of Technology, including Technological Change
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII