Physical Frictions and Digital Banking Adoption

51 Pages Posted: 20 Feb 2019 Last revised: 2 Jun 2019

See all articles by Hyun-Soo Choi

Hyun-Soo Choi

KAIST College of Business

Roger Loh

Singapore Management University - Lee Kong Chian School of Business

Date Written: May 31, 2019

Abstract

Banking services can now be delivered digitally and many banks are downsizing their physical operations. Bank customers are also relying less on physical locations because of digital banking. Is geography indeed now less important for banks? Using quasi-exogenous closures of ATMs in a densely populated city, we examine how small frictions to physical banking access can affect digital banking adoption. We find that after such closures, affected customers' travel distances to ATMs increase. This induces them to increase their usage of the bank's digital platform. Using closures as an instrument for digital adoption, we find that adopters become less likely to incur minimum-balance penalties. Our results show that small nudges can help overcome the status-quo bias and facilitate significant behavior change.

Keywords: Digital Banking, FinTech, Geography, Household Finance, Financial Inclusion

JEL Classification: D12, D14, G21, G40, O33

Suggested Citation

Choi, Hyun-Soo and Loh, Roger, Physical Frictions and Digital Banking Adoption (May 31, 2019). Available at SSRN: https://ssrn.com/abstract=3333636 or http://dx.doi.org/10.2139/ssrn.3333636

Hyun-Soo Choi

KAIST College of Business ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul
Korea, Republic of (South Korea)
8229583592 (Phone)

Roger Loh (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

Lee Kong Chian School of Business
50 Stamford Rd
Singapore, 178899
Singapore

HOME PAGE: http://www.mysmu.edu/faculty/rogerloh/

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