Open Banking and Customer Data Sharing: Implications for Fintech Borrowers

63 Pages Posted: 30 Nov 2022

See all articles by Rachel J. Nam

Rachel J. Nam

Goethe University Frankfurt; Leibniz Institute for Financial Research SAFE

Date Written: November 29, 2022

Abstract

With open banking, consumers take greater control over their own financial data and share it at their discretion. Using a rich set of loan application data from the largest German FinTech lender in consumer credit, this paper studies what characterizes borrowers who share data and assesses its impact on loan application outcomes. I show that riskier borrowers share data more readily, which subsequently leads to an increase in the probability of loan approval and a reduction in interest rates. The effects hold across all credit risk profiles but are the most pronounced for borrowers with lower credit scores (a higher increase in loan approval rate) and higher credit scores (a larger reduction in interest rate). I also find that standard variables used in credit scoring explain substantially less variation in loan application outcomes when customers share data. Overall, these findings suggest that open banking improves financial inclusion, and also provide policy implications for regulators engaged in the adoption or extension of open banking policies.

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

Suggested Citation

Nam, Rachel J., Open Banking and Customer Data Sharing: Implications for Fintech Borrowers (November 29, 2022). SAFE Working Paper No. 364, Available at SSRN: https://ssrn.com/abstract=4278803 or http://dx.doi.org/10.2139/ssrn.4278803

Rachel J. Nam (Contact Author)

Goethe University Frankfurt ( email )

Finance Department
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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