Catch-Up or Divergence? Clientele Effects and the Distribution of Bank Technology Adoption

We study how consumers trade off digital versus in-person banking services and how consumer demand impacts bank technology choices. We use the COVID-19 pandemic as a laboratory, where pandemic risk raised the cost of in-person bank services. After the cost of in-person banking rises, customers, particularly those from tech-oriented demographics, sharply transition from in-person to digital services and re-allocate from low IT to high IT banks. Banks - particularly high-IT ones - appear to respond to shifts in customer demand for digital services by upgrading technology and closing branches. In turn, the digital divide also increases in the banking market, with tech-savvy banks gaining market share