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Open banking: Credit market competition when borrowers own the data

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  • He, Zhiguo
  • Huang, Jing
  • Zhou, Jidong

Abstract

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 for fintechs. Open banking promotes competition if it helps level the playing field for all lenders in screening borrowers; however, if it over-empowers fintechs, it can also hinder competition and leave all borrowers worse off. Due to the credit quality inference from borrowers’ sign-up decisions, this remains true even if borrowers have the control of whether to share their banking data. We also study extensions with fintech affinities and data sharing on borrower preferences.

Suggested Citation

  • He, Zhiguo & Huang, Jing & Zhou, Jidong, 2023. "Open banking: Credit market competition when borrowers own the data," Journal of Financial Economics, Elsevier, vol. 147(2), pages 449-474.
    • Handle: RePEc:eee:jfinec:v:147:y:2023:i:2:p:449-474
    DOI: 10.1016/j.jfineco.2022.12.003
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    More about this item

    Keywords

    Open banking; Data sharing; Banking competition; Digital economy; Winner’s curse; Privacy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O36 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Open Innovation

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