The Digital Economy and Consumer Fraud

Abstract

We investigate whether the transition to the digital economy has unintended social consequences. We exploit bank branch closures, driven by the shift to digital banking, as shocks that push consumers to increase digital activity and exposure to consumer fraud. Following branch closures, consumers shop less in physical stores, increase online spending, and spend more time on finance and retail mobile apps. Using two quasi-natural experiments, we find that branch closures increase identity theft in the local area, especially among vulnerable communities such as military veterans. Adversaries actively target areas with more branch closures, exposing potential victims to more unwanted calls and phishing attacks. An analysis of local crime patterns suggests that our mechanism arises from a shift towards non-cash, digital transactions. Overall, bank branches can remain a vital social good in the digital age, providing security and consumer protection.