IFin Seminar, Rachel Nam - Goethe University Frankfurt
Institute of Finance
Date: 24.01.2024 / 12:25 - 13:40
Speaker: Rachel Nam - Goethe University Frankfurt
Title: Open Banking and Customer Data Sharing: Implications for FinTech Borrowers
Date: January 24, 2024
Time: 12:25 – 13:40
Room: A-12 (Red Building)
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 onprospective borrowers and lends empirical support to the sizable benefits of data-sharing driven by improved inferences about borrower credit quality. Using loan applicationdata 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.
