The Dark Side of Bank Digitalisation

SKBI Newsletter | April 2026

Could the digitalisation of banking be quietly exposing everyday consumers to hidden privacy risks? An SMU study provides causal evidence that the closure of physical bank branches contributes to the rise of identity theft across the U.S.

Key Messages:

• On average, each branch closure leads to over 163 additional reports of identity theft which is the most common data privacy concern, encompassing crimes such as credit card fraud and unauthorised access to bank accounts.
• When a branch closes, 82% of foot traffic disappears rather than redirecting to nearby branches. Consumers spend more time on all types of mobile apps and shift spending from offline to online channels, increasing their exposure to privacy risks.
• Branch closures are linked to rising adversarial activity, including a 23.7% increase in unwanted calls and greater exposure to phishing websites impersonating local banks.
• The effects are unevenly distributed. Consumers who are more reliant on physical banking or less digitally savvy tend to experience larger increases in identity theft following a closure.

Overall, physical bank branches provide social value beyond their direct profitability — serving as a meaningful protective buffer, particularly for the most vulnerable.

 

Phua, K., Wei, C., Yu, G. Y., 2025. Grand Theft Identity: The Privacy Costs of Digitalization. Working Paper.
 

As one of the world’s most rapidly ageing societies, Japan’s journey towards digitalisation has created new vulnerabilities, particularly for older citizens who may be less digitally fluent. We speak to Takako Masai and her team at SBI Financial and Economic Research Institute to hear more on this topic. 

Key Challenges:

• Digitalisation is necessary and inevitable, but institutions must account for the increased exposure to scams and data misuse that can accompany rapid shifts to online channels.
• As banks adopt digital-first models, consumer protection strategies must evolve beyond cybersecurity to include clear communication and accessible support.
• Regulators also have a responsibility to create targeted education and outreach initiatives for the vulnerable or less digitally fluent communities, rather than one-size-fits-all approaches.

Takako noted that Prof Yu’s findings are particularly relevant in Japan, where branch closures are common in rural regions. She added that the implications extend beyond the banking sector, as many firms across industries are similarly digitalising their services and business models.