Served Online, Effective Offline: Investigating the Impact of Consumers’ Adoption of Digital-Only Banks

Emerging digital-only banks without offline branches (i.e., digital banks), such as WeBank, are reshaping the banking industry. However, prior literature mainly investigates traditional banks’ digital channels (e.g., online or mobile banking), with limited research about the impact of consumers’ digital bank adoption. Moreover, despite their higher IT capability and information accessibility as well as lower transaction cost, digital banks are still under policy debate regarding their legality. Thus, this study examines the impact of consumers’ digital bank adoption on (1) their overall transaction behavior and (2) consequent competition between digital and traditional banks, as well as (3) the underlying mechanism behind the observed effects. Leveraging a unique dataset on consumers’ transactions with multiple banks and retailers, we use a difference-indifferences model to suggest that (1) consumers’ digital bank adoption significantly increases transaction frequency and transaction amount, (2) digital banks compete against traditional banks for offline consumption rather than online consumption, and (3) digital banks reduce product-related, time-related, and location-related transaction costs.