The value of in-person banking: evidence from U.S. small businesses

Abstract

We produce the first systematic study of the determinants and implications of in-person banking. Using survey data from the U.S., we show that firms which are informationally opaque or operate in rural areas are liable to contact their primary bank in-person. This tendency extends to older, less educated, and female business owners. We find that a relationship based on face-to-face communication, on average, lasts 17.88 months longer, spans a wider range of financial services, and is more likely to be exclusive. The associated loans mature 3.37 months later and bear interest rates which are 11 basis points lower. For good quality firms, in-person communication also relates to less discouraged borrowing. These results are robust to multiple approaches for endogeneity, including recursive bivariate probits, treatment effect models, and instrumental variables regressions. Overall, our findings offer empirical grounding to soft information theory and a note of caution to banks against suppressing channels of interpersonal communication.

Automation and Aging: The Impact on Older Workers in the Workforce

“…An example is the financial market. Banks make use of automated tasks to process documents (e.g., invoices) and to get customer data (e.g., process mining to risk mitigation), but also use non-automated tasks such as the personal attention of financial advisors (Zhang et al, 2021). This complementarity between automated and labor-intensive tasks at aggregate level is also assumed by Aghion et al (2019).…”