Pareto improvement and joint cash management optimisation for banks and cash-in-transit firms

•The cash management of bank-owned ATMs replenished by independent firms is explored.•A Baumol-type model shows that adequate pricing could make both sides better off.•The theoretical model is tested on the ATM network of a Hungarian commercial bank.

Improving the ATM cash management techniques of banks has already received significant attention in the literature as a separate optimisation problem for banks and the independent firms that supply cash to automated teller machines. This article concentrates instead on a further possibility of cost reduction: optimising the cash management problem as one single problem. Doing so, contractual prices between banks and the cash in transit firms can be in general modified allowing for further cost reduction relative to individual optimisations. In order to show the pertinence of this procedure, we have determined possible Pareto-improvement re-contracting schemes based on a Baumol-type cash demand forecast for a Hungarian commercial bank resulting in substantial cost reduction.