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Open Banking: Credit Market Competition When Borrowers Own The Data, Zhiguo He, Jing Huang, Jidong Zhou
Open Banking: Credit Market Competition When Borrowers Own The Data, Zhiguo He, Jing Huang, Jidong Zhou
Cowles Foundation Discussion Papers
Open banking facilitates data sharing consented by customers who generate the data, with a regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks’ customer data enables better borrower screening or targeting by fintech lenders. Open banking could make the entire financial industry better off yet leave all borrowers worse off, even if borrowers could choose whether to share their data. We highlight the importance of equilibrium credit quality inference from borrowers’ endogenous sign-up decisions. When data sharing triggers privacy concerns by facilitating exploitative targeted loans, the equilibrium sign-up population …
Open Banking: Credit Market Competition When Borrowers Own The Data, Zhiguo He, Jing Huang, Jidong Zhou
Open Banking: Credit Market Competition When Borrowers Own The Data, Zhiguo He, Jing Huang, Jidong Zhou
Cowles Foundation Discussion Papers
Open banking facilitates data sharing consented to by customers who generate the data, with the regulatory goal of promoting competition between traditional banks and challenger fintech entrants. We study lending market competition when sharing banks’ customer transaction data enables better borrower screening. Open banking can make the entire financial industry better off yet leave all borrowers worse off, even if borrowers have the control of whether to share their banking data. We highlight the importance of the equilibrium credit quality inference from borrowers’ endogenous sign-up decisions. We also study extensions with fintech affinities and data sharing on borrower preferences.