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When FinTech Competes for Payment Flows

Author

Listed:
  • Christine A Parlour
  • Uday Rajan
  • Haoxiang Zhu

Abstract

We study the impact of FinTech competition in payment services when a monopolist bank uses payment data to learn about consumers’ credit quality. Competition from FinTech payment providers disrupts this information spillover. The bank’s price for payment services and its loan offers are affected. FinTech competition promotes financial inclusion, may hurt consumers with a strong bank preference, and has an ambiguous effect on the loan market. Both FinTech data sales and consumer data portability increase bank lending, but the effects on consumer welfare are ambiguous. Under mild conditions, consumer welfare is higher under data sales than with data portability.

Suggested Citation

  • Christine A Parlour & Uday Rajan & Haoxiang Zhu, 2022. "When FinTech Competes for Payment Flows," The Review of Financial Studies, Society for Financial Studies, vol. 35(11), pages 4985-5024.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:11:p:4985-5024.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac022
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    Citations

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    Cited by:

    1. 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.
    2. Carli, Francesco & Uras, Burak, 2022. "Money, E-money, and Consumer Welfare," Other publications TiSEM d6c0389e-1036-4748-9040-5, Tilburg University, School of Economics and Management.
    3. Jesper Akesson & John Gathergood & Edika Quispe-Torreblanca, 2023. "Preventing Payments Fraud in the FinTech Era: New Evidence from a Behavioural Experiment," Discussion Papers 2023-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    4. Yuteng Cheng & Ryuichiro Izumi, 2023. "CBDC: Banking and Anonymity," Wesleyan Economics Working Papers 2023-002, Wesleyan University, Department of Economics.
    5. Babina, Tania & Bahaj, Saleem & Buchak, Greg & De Marco, Filippo & Foulis, Angus & Gornall, Will & Mazzola, Francesco & Yu, Tong, 2024. "Customer data access and fintech entry: early evidence from open banking," Bank of England working papers 1059, Bank of England.
    6. Wu, Lei & Yu, Dongli & Lv, Yongbin, 2023. "Digital banking and deposit: Substitution effect of mobile applications on web services," Finance Research Letters, Elsevier, vol. 56(C).

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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