London School of Economics and Political Science (LSE) Cautions Against Bank Closures During Epidemics

Consumers from lower-than-average socioeconomic backgrounds found it challenging to access online banking during the COVID-19 outbreak, while many continue to depend on in-person banking services. This, according to an update from the London School of Economics and Political Science (LSE).

The research, released in the Journal of Money, Credit and Banking, found that while individual consumers are quite likely to avoid traditional bricks-and-mortar locations during pandemics, take-up of digital financial services does tend to vary according to income, age, and employment levels.

Most consumers tend to return to in-person banking after a pandemic/health crisis

Researchers Dr. Orkun Saka, Dr. Barry Eichengreen, and Dr. Cevat Giray Aksoy gathered relevant data on epidemics globally with surveys of individual financial behavior fielded in over 140 nations in 2011, 2014 and 2017.

They found that during past epidemics, like Ebola, MERS and Zika, individuals has been more likely to switch to the Internet, mobile banking apps and automated teller machines (ATMs) to complete banking transfers, however, that clients went back to in-person banking after the epidemic had subsided.

Dr. Orkun Saka said:

“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.”

Banks need to also be aware that not all consumers have access to all-digital services.

Using a machine-learning algorithm, the research team identified the markers of individuals who had been likely to switch to online banking.

Their research suggests that younger, high-income earners in full-time employment are among the most likely perform online or mobile transactions during epidemics.

Dr. Saka added:

“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.”

Researchers also examined the role of domestic Internet infrastructure in the shift to online banking. They discovered that individual consumers with internet coverage of 3G are at least 2x more likely to switch to online banking during an epidemic, leaving those without at a signifcant disadvantage.

Dr. Saka also mentioned:

“Our research is just one example of the ‘digital divide’, which we have seen exacerbated during recent epidemics, including COVID-19.”

Dr. Saka continued:

“High-tech workers and workers in the professions have been better able to shift to remote work, compared to store clerks, custodians and other less well-paid individuals. Women have had more difficulty than men capitalising on opportunities to work remotely, given the types of work in which they typically find themselves. Individuals older than 65, being less technologically adaptable, find it more difficult to adjust to new ways of working. Small firms with limited technological capabilities have been less able to adapt their business models and stay competitive than their larger rivals. Residents of areas with limited broadband have experienced less scope for moving to remote work, remote schooling and telehealth.”

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