Key Findings
Open Banking Impact on Competition
Open banking can promote competition by leveling the playing field between traditional banks and fintech lenders, but may harm borrowers if it over-empowers fintechs by widening the screening ability gap.
Voluntary Data Sharing Effects
Even with voluntary sign-up decisions, borrowers can be worse off due to credit quality inference from sign-up choices and relaxed competition between lenders.
Market Segmentation Impact
Open banking creates market segmentation between opt-in and opt-out borrowers, potentially harming privacy-conscious borrowers through negative externalities.
Lending Market Competition Dynamics
- Bank maintains constant screening ability (xb = 0.4)
- Fintech screening ability improves significantly after open banking (xf: 0.35 → 0.8)
- Widened screening ability gap can reduce competition
Market Segmentation Under Voluntary Sign-up
- Privacy-conscious borrowers (ρ) represent 30% of market
- High-type borrowers more likely to sign up for open banking
- Market segments based on borrower sign-up decisions
Interest Rate Dynamics
- Interest rate spreads narrow after open banking
- High-type borrowers may face higher rates due to reduced competition
- Rate dynamics influenced by credit quality inference from sign-up decisions
Contribution and Implications
- First theoretical analysis of open banking's impact on credit market competition with voluntary data sharing
- Demonstrates how borrower control over data sharing can still lead to adverse outcomes through market inference
- Provides policy insights for regulating open banking and protecting consumer welfare
Data Sources
- Competition dynamics chart based on numerical example in Figure 3 showing screening ability parameters
- Market segmentation visualization derived from equilibrium characterization in Proposition 4
- Interest rate chart constructed using numerical parameters from Section 4.2.3 example where r = 0.36
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