More robust mobile banking options correlate with a greater likelihood of losing deposits to better-yielding accounts or investments as interest rates rise, according to a soon-to-be-published study by researchers at Columbia Business School and the University of Chicago. In a new article on their paper, the researchers said they wanted to understand how technology affects deposit “stickiness” given that mobile banking has become the most popular account access channel, according to the FDIC.
The researchers said that more than half of U.S. banks have a mobile app, so they used customer reviews to determine which apps were most frequently used, focusing on banks between $5 billion and $250 billion in deposits. (They also accounted for banks that own brokerages, which they said could facilitate customers’ ability to move money out of deposits and into money market funds or Treasury bills and bonds.) The researchers saw a sharp divergence in deposit behavior among banks with robust mobile apps and those with less robust options starting last year, when the Federal Reserve began hiking interest rates.
“Banks with neither an effective mobile app nor a brokerage account see their deposits grow at a steady 1.5% rate in the third and fourth quarter of 2022, in spite of the rising interest rates,” the researchers noted. “By contrast, banks that have both a functioning mobile app and a brokerage account see their deposits drop by 2% in the fourth quarter of 2022.” Markets with higher internet usage had higher deposit outflows, but only among banks with robust mobile apps, according to the researchers. They also found no difference in outflows between insured and uninsured deposits.