Physical Frictions and Digital Banking Adoption

Banking services can now be delivered digitally and many banks are downsizing their physical operations. Bank customers are also relying less on physical locations because of digital banking. Is geography indeed now less important for banks? Using quasi-exogenous closures of ATMs in a densely populated city, we examine how small frictions to physical banking access can affect digital banking adoption. We find that after such closures, affected customers' travel distances to ATMs increase. This induces them to increase their usage of the bank's digital platform. Using closures as an instrument for digital adoption, we find that adopters become less likely to incur minimum-balance penalties. Our results show that small nudges can help overcome the status-quo bias and facilitate significant behavior change