The digitalisation of banking and social media: implications for deposit pricing

This paper examines the implications of two coincident digital trends - the digitalisation of banking and the widespread adoption of social media - for the pricing of deposits in the United States. Using branch-level data, we analyse how both trends interact to influence the level of deposit rates as well as their adjustment to changes in the policy rate. Our analysis distinguishes between traditional banks with physical branch networks and digital banks. Using panel regression analysis and local projections, we find that digital banks' deposit rates are higher and more reactive to changes in policy rates, consistent with the view that their customers are more price sensitive. We further find that digital banks offer higher deposit rates and react more sharply to policy rate changes in counties with higher social media activity, as measured by Twitter usage, supporting the notion that high social media use further increases price sensitivity.