Evolution of Banking in the Digital Age: Branches and Industry Structure
ZHANG Haiyang, HU Yingqi, LU Liping, CAI Weixing
School of Banking and Finance, University of International Business and Economics; Institute of Digital Finance, Peking University; School of Finance, Renmin University of China; School of Finance, Guangdong University of Finance & Economics
Summary:
Advances in digital technology affect the development process of societie and this has become an important force affecting business patterns, factor allocation, and economic structure. As a national strategy, China is developing its digital economy to promote the deep integration of the digital and real economies.Accordingly, this study mainly assesses the impact of digital finance on the branch network distribution and industrial structure changes of traditional banking institutions. As a type of “creative destruction”, the relationship between digital and traditional finance is both competitive and complementary. Simultaneously, the development of traditional finance requires support from the real economy and inevitably varies along with economic and industrial development. Moreover, the impact of digital finance on the development of traditional finance is inevitably influenced by the above factors. China's indirect financial system is dominated by banks,and the banking system's layout and industry structure can reveal the changes in traditional finance in the digital economy era to a certain extent. The main concerns of this study are as follows: How does the rapid development of digital finance affect the banking industry？ What kind of banking financial institutions are more affected by digital finance？ What factors regulate the impact of digital finance on banking financial institutions？ This study uses financial license data from the China Banking and Insurance Regulatory Commission, and also uses the Peking University Digital Inclusive Finance Index as a measure of the development of digital finance.This study investigates whether digital finance affects the establishment, change, and exit of local banking financial institutions. We mainly assess whether a significant causal relationship exists between regional digital finance and the growth rate of the number of banking financial institutions. To achieve this goal, we adopt the fixed effects model with panel data. In addition, we adopt identification strategies such as explanatory variables with a lag period and instrumental variable regression to avoid the potential issue of endogeneity. Accordingly, we conduct a battery of robustness checks to ensure that our conclusions are valid. Our findings show that the development of digital finance significantly slows the expansion of physical financial institution outlets in China's banking industry. Moreover, obvious heterogeneity is observed in the results regarding the impact on different types of banks. The development of digital finance slows the expansion of joint-stock and urban commercial banks and mainly affects their grassroots institutions. Although the development of digital finance accelerates the transformation of cooperative financial institutions in rural areas and the withdrawal of outlets, it does not have a significant impact on big state-owned banks. Furthermore, the impact of digital finance improves with economic development and increased regional financial availability but may decline with the improvement of the market power of incumbent banks. This paper quantitatively measures the possible impacts of digital finance on the banking industry and clarifies its mechanism of action, which can serve as an important reference for financial policy making. In the future, the accelerated development of digital finance is bound to create greater changes in the industry. At the same time, using microdata, we may be able to further explore the specific impact of digital finance on the performance of individual banks.
张海洋, 胡英琦, 陆利平, 蔡卫星. 数字时代的银行业变迁——网点布局与行业结构[J]. 金融研究, 2022, 507(9): 75-92.
ZHANG Haiyang, HU Yingqi, LU Liping, CAI Weixing. Evolution of Banking in the Digital Age: Branches and Industry Structure. Journal of Financial Research, 2022, 507(9): 75-92.
Agarwal S. and R. Hauswald, 2010, Distance and Private Information in Lending. The Review of Financial Studies, 23(7):2757～2788.
[29]
Berger A. N. and G. F. Udell, 2002, “Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure”, The Economic Journal, 112(477):F32-F53.
[30]
Burstein F., J. Cowie, A. Zaslavsky and J. S. Pedro, 2008, “Support for Real-Time Decision Making in Mobile Financial Applications”, Information Systems and e-Business Management, 6(3):257～278.
[31]
Carl S. and H. Varian, 1998, Information Rules. McGraw-Hill Professional.
[32]
Han L. and F. Greene, 2007, “The Determinants of Online Loan Applications From Small Businesses”, Journal of Small Business and Enterprise Development, 14(3):478～486.
[33]
Lapavitsas C. and P. L. Dos Santos, 2008, “Globalization and Contemporary Banking: On the Impact of New Technology”, Contributions to Political Economy, 27(1):31～56.
[34]
Lee M., 2009, “Predicting and Explaining the Adoption of Online Trading: An Empirical Study in Taiwan”, Decision Support Systems, 47(2):133～142.
[35]
Lin C., C. Ma, Y. Sun and Y. Xu, 2021, “The Telegraph and Modern Banking Development, 1881-1936”, Journal of Financial Economics, (forthcoming).
[36]
Marcus A. J., 1984, “Deregulation and Bank Financial Policy”, Journal of Banking & Finance, 8(4):557～565.
[37]
Mookerjee R. and P. Kalipioni, 2010, “Availability of Financial Services and Income Inequality: The Evidence From Many Countries”, Emerging Markets Review, 11(4):404～408.
[38]
Nunn N. and N. Qian, 2014, “US Food Aid and Civil Conflict”, American Economic Review, 104(6):1630～1666.
