Background and Context
Financial Services Landscape
Banks have historically controlled both payment processing and lending, but FinTech firms like PayPal, Venmo, and Apple are now competing in the payments space.
Research Focus
The study examines how competition from FinTech payment providers affects bank lending when banks use payment data to assess borrowers' creditworthiness.
Methodology
The researchers develop a model where a monopolist bank competes with FinTech firms in payments while maintaining monopoly power in lending, analyzing how consumer credit quality information flows affect lending outcomes.
Impact of FinTech Competition on Bank Payment Prices
- Shows how bank prices for payment services change with FinTech competition
- When hazard rate is decreasing (k < 1), competition leads to higher prices
- When hazard rate is increasing (k > 1), competition leads to lower prices
Financial Inclusion Effects of FinTech Entry
- FinTech competition increases access to electronic payment services
- Previously unbanked consumers gain access through FinTech providers
- Demonstrates positive financial inclusion impact of FinTech competition
Loan Market Information Flow With and Without FinTech
- Traditional model allows direct information flow from bank payments to lending
- FinTech competition disrupts information flow between payments and lending
- Loss of payment data affects bank's ability to assess credit quality
Impact of Payment Data Quality on Loan Terms
- Shows how loan terms change as payment data quality improves
- Higher quality signals generally reduce surplus for high credit type borrowers
- Demonstrates trade-off between information quality and consumer benefits
Data Sales vs Data Portability Outcomes
- Compares outcomes between FinTech data sales and consumer data portability
- Data sales generally lead to better consumer welfare outcomes
- Data portability results in higher payment prices and bank profits
Contribution and Implications
- Demonstrates that FinTech competition in payments can either increase or decrease prices depending on market conditions
- Shows that FinTech competition promotes financial inclusion but may hurt consumers with strong bank preferences
- Reveals that data sales are generally better for consumer welfare than data portability
- Provides framework for policymakers to evaluate FinTech competition effects
Data Sources
- Price impact chart based on numerical examples from Figure 2 in the paper
- Financial inclusion visualization derived from discussion in Proposition 4
- Information flow diagram illustrates theoretical framework from Section 1
- Loan terms chart based on Figure 3 showing relationship between α and loan surplus
- Data regime comparison based on findings presented in Proposition 6
Infographics of Publications by Journal
