Closing bank branches, opening up to scammers

By Christie Loh

SMU Office of Research Governance & Administration – As digitalisation drives banks to shutter more retail branches, the disappearance of these brick-and-mortar facilities has been found to be a significant factor behind the scourge of online scams and identity theft.

The causal link, reported in a novel investigation by a trio of academics including Singapore Management University’s (SMU) Assistant Professor of Finance Gloria Yang Yu, received the Best Paper Award (2025) from the ANU-FIRN Banking and Financial Stability Meeting. The annual meeting is organised by Australian National University, and the Financial Research Network (FIRN) for financial economics researchers in Australia and New Zealand.

“Using a quasi-natural experiment, we find causal evidence that branch closures increase identity theft, particularly in more vulnerable communities,” the writers said in the paper, “Grand Theft Identity: The Privacy Costs of Digitalisation”. “Adversarial activities associated with identity theft, such as unwanted calls and phishing attempts, increase after branch closures.” 

The other two co-authors are Hong Kong Polytechnic University Associate Professor Chishen Wei and University of Technology Sydney Senior Lecturer of Finance Kenny Phua.

Their research project is based on data pulled from various sources in the United States, including Metropolitan Statistical Area (MSA) data from the Federal Trade Commission (FTC) Consumer Sentinel Network, and branch data put out by the Federal Deposit Insurance Corporation (FDIC).

Drawing on a variety of datasets, the researchers demonstrate that the causal relationship between branch closures and identity theft holds true even after accounting for local conditions and banks' cybersecurity investments.

They found that MSAs with more branch closures indeed experienced more identity theft, which is the most common data privacy concern and encompasses crime such as credit card fraud and unauthorised access to bank accounts. They also studied geotagged consumer complaints and traced how post-branch closure, there was a significant increase in identity theft complaints from local customers of that bank, relative to other consumers and banks in that county.

Although the study is based on US data, the finding that digitalisation increases exposure to identity theft is “fairly universal” and can hold useful lessons for other jurisdictions such as Singapore, which are also seeing more branch closures and rising cybercrime, said Professor Yu.

The post-closure buzz

“When a physical branch closes, consumers aren't just losing a place to deposit checks – they’re being pushed into the digital economy, often without a choice, even if they aren't ready,” Professor Yu told SMU’s Office of Research Governance and Administration (ORGA).

The research team found that when a bank branch closes, a hefty 82 percent of foot traffic disappears completely, while the minority migrate to nearby outlets; those customers also spend significantly more time on that bank’s mobile app and other non-bank mobile apps. More time online structurally exposes them to identity theft risks, among other “hidden costs”, said Professor Yu.

For instance, the researchers calculated that unwanted phone calls received by a county – exacerbated by low-cost, programmatically automated calls known as “robocalls” – surged by 23.7 percent per month following a branch closure. This imposes additional social costs by wasting time, they said.

Also up were phishing attacks, which are another common adversarial tactic employed by scammers to trick consumers into providing personal information through deceptive emails or websites. 

The social value of bank branches

“The nuanced message from our research is this: Branch closures have real costs that aren't being adequately considered. When a bank decides to close a branch, they're typically thinking about operational efficiency. What they may not be accounting for is the externality imposed on consumers,” said Professor Yu.

The privacy costs, she explained, are not only pertaining to digital security but “also about the loss of human touchpoints”. Digital systems are unable to easily replicate the kind of “personalised protection” provided by bank tellers who are trained to spot suspicious activity and warn customers.

“Bank branches provide social value that goes beyond their direct profitability – they serve as a protective buffer, especially for populations who aren't digitally savvy. This social value has been overlooked and not entirely internalised by banks and regulators,” she said.

Professor Yu called for policymakers to consider “better incentivising” banks to maintain some physical presence in high-risk areas such as where elderly residents are concentrated, ensure gradual transitions to the digital realm, and for banks and governments to invest in consumer education that is tailored rather than one-size-fits-all.

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