【 Webinar Series - Innovation, Productivity, and Challenges in the Digital Era: Asia and Beyond 】
Bank Competition amid Digital Disruption: Implications for Financial Inclusion
Date: 8 Feb 2023 (Wed)
Time: 10am – 11:10am (Hong Kong Time, UTC+8)
Abstract: 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.
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
Sean HIGGINS (Northwestern University)
About the Webinar
Artificial Intelligence (AI), Big Data, multilevel neural nets, the Internet of Things (IoT) and other digital technologies are transforming the world. They are strengthening innovation and productivity and innovation by rendering the future more predictable and reshaping individual, business, social, and government behavior. Asia leads the world in some of these endeavors, e.g., digital platforms. The OECD lists 40% of big new digital technologies as Asian. Almost half of global digital platform business-to-consumer revenues are Asian, versus only 22% from the U.S. and 12% from the Eurozone. Profound new policy challenges arising, in consequence, include: shifting skills demanded in labor markets and “digital divide” inequality, (ii) AI expanding financial inclusion or encoding inequality, expanding or obscuring accountability, increasing transparency or obscuring amoral decision-making, and (iii) digital privacy, unsanctionable on-line libel, misinformation, manipulation, and propaganda. The ABFER, therefore, plans a monthly e-seminar series spotlighting important new research, particularly the Asia-pacific related, into these issues and providing “state-of-the-art” overviews by prominent scholars. We hope policy makers and practitioners will find the e-seminars helpful and will alert researchers to issues needing attention.
ABFER, The Chinese University of Hong Kong-Zhejiang University Joint Research Center for Digital Economy, The Chinese University of Hong Kong (CUHK) Department of Economics and Center for Internet Development and Governance, Fanhai International School of Finance (FISF), Fudan University, National Tsing Hua University College of Technology Management and Tsinghua University School of Economics and Management (Tsinghua SEM)