Customer Data Access and Fintech Entry: Early Evidence from Open Banking

Abstract

Open banking (OB) empowers bank customers to share transaction data with fintechs and other banks. 49 countries have adopted OB policies. Consumer trust in fintechs predicts OB policy adoption and adoption spurs investment in fintechs. UK microdata shows that OB enables: i) consumers to access both financial advice and credit; ii) SMEs to establish new fintech lending relationships. In a calibrated model, OB universally improves welfare through entry and product improvements when used for advice. When used for credit, OB promotes entry and competition by reducing adverse selection, but higher prices for costlier or privacy-conscious consumers partially offset these benefits.

Keywords: Open banking, entrepreneurship, fintech, financial innovation, data access, data rights, data portability, Big Data, financial regulation, financial sector, banks

JEL Classification: G21, G23, G28, G24, G50, K21, L10, L51, O31, O36, O50, O38