Information Technology and Financial Services Competition
36 Pages Posted: 11 Jan 2002
This paper analyzes the impact of two dimensions of technological progress on competition in financial services. On the one hand, better information technology may result in improved information processing; on the other, it might also lead to low cost or even free access to information through, for example, informational spillovers. In the context of credit screening, we show that better access to information decreases interest rates and the returns from screening. However, an improved ability to process information increases interest rates and bank profits. Hence, predictions regarding the pricing of financial claims hinge on the overall effect ascribed to the technological progress. Our results generalize to other financial markets where informational asymmetries are prime determinants of profitability, such as insurance and securities markets.
JEL Classification: D43, D44, G21, L11, O33
Suggested Citation: Suggested Citation