Customer Data Access and Fintech Entry: Early Evidence from Open Banking

Open Banking and Customer Data Sharing: Implications for Fintech Borrowers

“…However, the effects become statistically weaker and even insignificant among the riskiest borrowers. This finding therefore only partially confirms the existing theoretical literature which claims that under open banking high types are more likely to opt-in to send a positive signal (He et al, 2020;Babina et al, 2022).…”

“…As of October 2021, 80 countries worldwide have at least a nascent government-led open banking effort. Most of them are still in the early-discussion phase and only 32 countries have fully implemented the policy (Babina et al, 2022) 3 . The details on open banking regulations vary substantially.…”

“…The data are then often owned and controlled by the same institutions who then enjoy data monopoly, a source of increased market power in the digital economy (Lambrecht and Tucker, 2015;De Ridder, 2019;Kirpalani and Philippon, 2020;Eeckhout and Veldkamp, 2022). Open banking changes this data ownership dynamics and thus can promote competition by encouraging new players to enter the market with lower entry costs (He et al, 2020;Babina et al, 2022).…”

“…It is possible that good types may share more to send a positive signal. As a result, open banking and consumer data provision will benefit good types and bad types will opt out in order to benefit from single pooling (He et al, 2020;Parlour et al, 2020;Babina et al, 2022). In an attempt to infer the conditional probability of open banking participation, Here, I use two measures, 1) ex-post platform scores and 2) loans that have never been in arrears to proxy for unobservable risk 12 .…”

“…Additionally, granular transaction data facilitate better inference of credit quality and may lead to more favorable and targeted loan application outcomes, yet can also hurt borrowers if the main use of data is for price discrimination (Babina et al, 2022). Therefore, the question of who decides to share and whether or not borrowers benefit from doing so is an empirical question.…”