When FinTech Competes for Payment Flows
53 Pages Posted: 24 Mar 2020 Last revised: 2 Apr 2020
Date Written: February 26, 2020
We study the impact of FinTech competition in payment services when banks rely on consumers' payment data to obtain information about their credit quality. Competition from FinTech payment providers disrupts this information spillover, reducing the bank's loan quality and profit. FinTech competition benefits consumers with weak bank affinity (financial inclusion improves), but may hurt consumers with strong bank affinity. We consider three regimes in which payment information flows back into the credit market: FinTech lending, data sales, and consumer data portability. All three regimes improve the quality of loans, although their effects for bank profit and consumer welfare are ambiguous. Our results highlight the important and complex trade-off between consumer welfare and the stability of banks following FinTech competition in payment.
Keywords: FinTech, BigTech, payment, competition, banks, credit market
JEL Classification: D43, G21, G23, G28
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