Publication Date: November 2020
Revision Date: March 2022
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.
Keywords: Open banking, Data sharing, Banking competition, Digital economy, Winner's curse, Privacy
JEL Classification Codes: G21, L13, L52, O33, O36See CFDP Version(s): CFDP 2262