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Open banking and customer data sharing: Implications for FinTech borrowers

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  • Nam, Rachel J.

Abstract

With open banking, consumers take greater control over their own financial data and share it at their discretion. Using a rich set of loan application data from the largest German FinTech lender in consumer credit, this paper studies what characterizes borrowers who share data and assesses its impact on loan application outcomes. I show that riskier borrowers share data more readily, which subsequently leads to an increase in the probability of loan approval and a reduction in interest rates. The effects hold across all credit risk profiles but are the most pronounced for borrowers with lower credit scores (a higher increase in loan approval rate) and higher credit scores (a larger reduction in interest rate). I also find that standard variables used in credit scoring explain substantially less variation in loan application outcomes when customers share data. Overall, these findings suggest that open banking improves financial inclusion, and also provide policy implications for regulators engaged in the adoption or extension of open banking policies.

Suggested Citation

  • Nam, Rachel J., 2022. "Open banking and customer data sharing: Implications for FinTech borrowers," SAFE Working Paper Series 364, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:364
    DOI: 10.2139/ssrn.4278803
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    Cited by:

    1. Olivier Armantier & Sebastian Doerr & Jon Frost & Andreas Fuster & Kelly Shue, 2024. "Nothing to hide? Gender and age differences in the willingness to share data," BIS Working Papers 1187, Bank for International Settlements.
    2. 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.

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    More about this item

    Keywords

    Open banking; FinTech; Marketplace lending; P2P lending; Big data; Customer data sharing; Data access; Data portability; Digital footprints;
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