The Interoperability of Financial Data

Abstract

This paper studies how data interoperability - third-party direct access to customers' financial information - affects competition and welfare in the finance sector. Our model reveals a trade-off: while sharing customer data improves competition in information-intensive services like credit, it may increase prices of data-generating services like payments. We show that targeted data-interoperability regimes (e.g., Open Banking) preserve the ability of banks to extract surplus by shifting market power from credit to payment markets. Although some firms benefit in aggregate from increased competition, others are left worse off by the changes in payment prices. Wider-reaching data-interoperability initiatives (e.g., Open Finance) further level the playing field and diminish banks' capacity to monetize their data, reallocating surplus toward firms and alternative lenders. Our findings underscore the need to account for cross-market spillovers when designing policies that regulate access to financial data.

Keywords: Data sharing, Banking, FinTech, Credit, Payment, Information spillovers

JEL Classification: G21, G23, G28, G32, D82, D83, L51, O33