Banks’ Physical Footprint and Financial Technology Adoption

We investigate how the presence of physical bank branches moderates financial technology diffusion. Our identification strategy uses services suspensions caused by criminal groups that perform hit-and-run raids and explode branch facilities, rendering them inoperable for a couple of months. We show that the shock depletes the cash inventory of branches, but the stock of credit and deposits remain unaffected. We then provide evidence that customers increase their usage of noncash payments after the event. More specifically, we focus on a new instant payment technology called Pix and show that, after robbery events, Pix usage and the number of users increase in the affected municipalities. We find that these effects are mediated by the number of alternative branches to access cash. Interestingly, we find Pix usage spillover effects beyond cash substitution. First, the number of Pix transactions and users increases when either the payer or the payee is in a municipality that was not affected by the robbery. Second, we show that the population affected by such robberies start to perform Pix transactions and use other financial services at digital financial institutions, indicating that cash dependence can be an impediment to their expansion. Our results shed light on the determinants of technology adoption and the consequences of the transition in the banking industry from a physical branch-based model to an increasing reliance on digital services.