Bank competition amid digital disruption: Implications for financial inclusion

• Main Authors: JIANG, Erica Xuewei, YU, Yang Gloria, ZHANG, Jinyuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: technology; bank competition; consumer preference; digital inequality; financial inclusion; Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/skbi/48; https://ink.library.smu.edu.sg/context/skbi/article/1047/viewcontent/Bank_Competition_amid_Digital_Disruption.pdf
• Institution: Singapore Management University

We study how digital disruption impacts bank competition, considering consumers’ heterogeneous digital preferences. We find that the rollout of 3G networks contracts bank branch networks and leads to divergence in branching and pricing strategies across banks. These developments benefit young consumers but increase the unbanked rate for poorer and older consumers. A structural model shows that the higher perceived digital quality by younger borrowers mainly prompts these adjustments, causing significant surplus losses for older savers. Counterfactual exercises illustrate that subsidizing older savers opting for mobile banking effectively offsets these disparities at minimal cost, facilitating a smoother digital transition.