Open Banking and Customer Data Sharing: Implications for Fintech Borrowers

Abstract

Open banking enables loan applicants to easily share payment data, which in theory could improve credit access by reducing information asymmetry but also raises concerns about price discrimination that exploits individuals’ preferences. Using loan data from a leading German FinTech lender, I document that observably riskier applicants (with lower credit scores) are more inclined to disclose data. Data sharing consequently leads to higher loan approval rates and reduced interest rates and is associated with lower ex post defaults. The findings suggest that open banking and data sharing can result in more efficient credit allocation and reduced adverse selection.

Keywords: Open banking, FinTech, Marketplace lending, P2P lending, Big Data, Customer data sharing, Data access, Data portability, Digital footprint

JEL Classification: D12, G21, G28, G50