Keeping Up in the Digital Era: How Mobile Technology Is Reshaping the Banking Sector

Abstract

I show that the growing trend in financial services digitalization has introduced a new dimension along which commercial banks compete. Small community banks (SCBs) are slow to implement mobile technologies and lose deposits to larger, better-digitized banks following mobile infrastructure improvements. This dynamic negatively affects their small business lending, for they have historically relied on information and liquidity synergies with deposits to maintain their competitive advantage in such markets. Larger banks and FinTech firms prove to be imperfect substitutes in this setting, and the local economy benefits less from digitalization in areas where SCBs had an important presence before its advent.

Keywords: Digitalization, Mobile Technology, FinTech, Banking, Depository Institutions, Commercial Banks, Small Business Lending

JEL Classification: G20, G21, G23, O32, O33