While people are significantly more likely to avoid traditional bricks-and-mortar branches during epidemics, many will later return to in-person banking, says a new study, suggesting that closing bank branches during crises could exacerbate the digital divide.
Banks should be aware that not everyone has access to digital services, according to a paper by the London School of Economics and Political Science (LSE). It suggests that necessary infrastructure must be rolled out in a manner that encompasses poorer, more remote regions to avoid a widening of the digital divide.
In the study of data on epidemics worldwide – with surveys of individual financial behaviour fielded in more than 140 countries in 2011, 2014 and 2017 – LSE researchers say epidemic exposure mainly affects the form of banking activity – digital or in person – without increasing or reducing its volume or extent.
The research, published in the Journal of Money, Credit and Banking, reveals that while people are significantly more likely to avoid traditional bricks-and-mortar branches during epidemics, take-up of digital financial services varies according to income, age, and employment levels.
During previous epidemics, including Ebola, MERS and Zika, people were more likely to switch to the internet, mobile banking apps and automated teller machines (ATMs) to carry out banking transactions, but that customers returned to in-person banking once the epidemic was over.
Dr Orkun Saka, one of the researchers, comments: “This evidence tells us that although we have seen a swap from in-person to online banking over recent epidemics, including Covid-19, banks should think twice before permanently closing bricks and mortar branches. After every epidemic we studied, people almost always returned to in-person banking.
“Our research indicates that individuals who are elderly or less economically-advantaged are not accessing to the same extent the digital financial services that many take for granted, and have benefitted from during the Covid-19 pandemic. Our research is just one example of the ‘digital divide’, which we have seen exacerbated during recent epidemics, including Covid-19.”
However, the report says that while the shift toward digital financial technology in response to past epidemics was temporary rather than enduring, this may not be the case post-Covid.
It states: “It could be that past epidemics being of relatively short duration, users did not see the need to permanently alter their practices. Here Covid-19 might be an exception. Covid-19 was a large, global pandemic; we find if anything an even larger shift toward online and mobile banking in response to large epidemics.
“Digital technology enables individuals to maintain customary levels of banking and financial activity while limiting epidemic risks to their health, but only if the necessary infrastructure is rolled out in a manner that encompasses poorer, more remote regions.”