The cost of closure: the relation between the presence of bank branches and trust

The banking sector is undergoing a rapid transformation due to the digitalisation of financial services, which has led to the widespread closure of bank branches. This study examines the relation between the presence of bank branches in the Netherlands and consumer trust in the payment system. Such trust is essential for the smooth functioning of the payment system. Using regional data from the Dutch Chamber of Commerce on bank branch locations and a consumer survey from De Nederlandsche Bank and the Dutch Payment Association, we estimate fixed effects models to assess how branch closures affect trust in the payment system in general (broad-scope trust) and trust in payment services offered by consumers’ own bank (narrow-scope trust). The results indicate the presence of bank branches is positively associated with both trust measures, although the effects are small. Municipalities without a bank branch exhibit significantly lower levels of narrow-scope trust, while broad-scope trust is unaffected. Furthermore, the closure of two or more branches within a year reduces trust slightly. The findings provide new insights for further research and highlight the importance of maintaining accessible banking services to safeguard consumer trust, whether that is through a physical bank location or a financially inclusive alternative.

Keywords: broad-scope trust; narrow-scope trust; bank branches; financial inclusion
JEL codes G21; D12; O33

Working paper no. 848