The Leibniz Institute SAFE organizes a seminar on
Open Banking and Customer Data Sharing: Implications for FinTech Borrowers
Rachel Nam (SAFE)
1 November, 12:00 – 13:00, SAFE Common room (HoF 1.01) and online
Abstract: Open banking allows loan applicants to easily share payment data with prospective lenders during loan applications. In theory, this could broaden credit access by reducing information asymmetry but may also lead to price discrimination that exploits individuals’ preferences and behavioral traits. This paper studies the impact of open banking on prospective borrowers and lends empirical support to the sizable benefits of data-sharing driven by improved inferences about borrower credit quality. Using loan application data from a leading German FinTech lender in consumer credit, I show that applicants with observably higher credit risk (with lower credit scores) are more likely to share data. By exploiting the variation of data sharing choices from observably similar applicants, I document that data sharing increases loan approval rates, reduces interest rates, and is associated with lower ex post default rates. These findings suggest that open banking can enhance credit allocation efficiency and reduce adverse selection.
