Bank Competition amid Digital Disruption: Implications for Financial Inclusion
This paper studies how banks compete amid digital disruption and the resulting distributional effect across consumers. Digital disruption increases the geographic coverage of banking services, bringing new entrants to local markets. However, as digital customers shift from branches to digital services, banks close branches, and those specialize in branches gain market power among non-digital customers who rely on branches. Consequently, digital customers benefit from the intensified bank competition at the cost of non-digital customers who pay higher prices for branch services and face the risk of financial exclusion. Their empirical design exploits the staggered expansion of 3G networks as digital disruption proxies and further instruments 3G coverage with the regional distribution of lightning strike frequency to establish a causal interpretation. They then build a structural model of bank competition to understand how digital disruption transforms the banking sector. Through counterfactual, we show that digital disruption in loan market spills over to deposit market through banks' branching decisions, leading to welfare losses of older depositors. Collectively, the results highlight the importance of considering the supply-side adjustment in understanding the distributional effects of digital disruption.
Session Chair: Pulak GHOSH
IIMB Chair of Excellence and Professor of Decision Sciences, Indian Institute of Management Bangalore (IIMB) and Fellow of ABFER
Gloria Yang YU, Assistant Professor of Finance, Lee Kong Chian School of Business, Singapore Management University
Erica Xuewei JIANG, Assistant Professor of Finance and Business Economics, USC Marshall School of Business, University of Southern California
Jinyuan ZHANG, Assistant Professor of Finance, UCLA Anderson School of Management, University of California, Los Angeles
Gloria Yang YU
Assistant Professor of Finance, Lee Kong Chian School of Business, Singapore Management University
Gloria Yang YU is an Assistant Professor of Finance at the Lee Kong Chian School of Business at Singapore Management University. Her research focuses on how financial intermediaries respond to disruptions and how FinTech impacts financial decision-making. She received a PhD in Finance from INSEAD.
Assistant Professor of Finance, Kellogg School of Management, Northwestern University
On the academic side, Sean HIGGINS is an Assistant Professor of Finance at the Kellogg School of Management at Northwestern University. His research studies how technology reduces barriers to financial inclusion, and the effect of reducing these barriers on households and small firms. He received a BS and PhD in Economics from Tulane University. Prior to joining Kellogg, he was a Post-Doctoral Fellow at the Haas School of Business at the University of California, Berkeley.
Professor, Decision Sciences, Indian Institute of Management, Bangalore and Fellow of ABFER
Pulak GHOSH is Professor in the Decision Sciences Area at IIMB. His key specializations are in intersection of Big data, Machine learning, Artificial Intelligence and its use in Economics, Finance, Policy and Social Value Creation. He did serve in the editorial board of Journal of the American statistical Association, Journal of the Royal statistical Society and currently serves in the editorial board of Biometrics.
Based on his outstanding and innovative contribution to research, the International Indian Statistical Association awarded him with the "Young Scientist Award” in 2011. The Government of India awarded him the prestigious CR Rao award in 2015 and Econometric Society awarded him the Mahalanobis Award in 2016.
Prior to joining IIMB, he served as Associate Director, Novartis Pharmaceuticals, USA, Assistant Professor, Georgia State University, and Associate Professor at Emory University, USA. He is a visiting faculty at several institutes of international repute.
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