Impact of mobile banking on small business lending after bank branch closures

Abstract

We provide new evidence on the substitute role of mobile banking in small business lending after banks close branches. Compared to the matched bank-counties with similar economic conditions and bank financials, small business lending in the treatment counties decreases 0.064 million (equivalent to 18.8%) less after branch closings for banks with mobile apps than banks without mobile apps. The effect is more pronounced in high-income census tracts and for high-rated apps, suggesting that high-income customers and customers whose banks provide better mobile apps are less affected when banks close branches. We do not find a significant impact of having apps on small business lending when banks increase the number of branches. However, the effect of having mobile apps increases with closed branches' years of service. Our results imply that bank branches are still important in providing credit to the local communities. Mobile banking helps preserve the existing customer-bank relationship but cannot reduce information asymmetry.