VGSF - WU Vienna - LC

Uday Rajan, University of Michigan, Ross School of Business

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Uday Ra­jan from the Uni­versity of Michigan, Ross School of Busi­ness to present his re­search pa­per.
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Pa­per

FinTech Dis­rup­tion, Pay­ment Data, and Bank In­form­a­tion

We study the im­pact of FinTech com­pet­i­tion on a mono­pol­ist bank that bundles pay­ment pro­cessing and lend­ing. In our model, con­sumers' pay­ment data con­tain in­form­a­tion about their credit qual­ity. This in­form­a­tion is valu­able to the bank when mak­ing loans. Sur­pris­ingly, un­der mild con­di­tions, con­sumers in the loan mar­ket also be­ne­fit ex ante from the bank be­ing in­formed. The bank in­tern­al­izes the value of this in­form­a­tion when pri­cing its pay­ment ser­vices, as do con­sumers when choos­ing a pay­ment pro­cessor. Com­pet­i­tion from FinTech firms spe­cial­iz­ing in pay­ment ser­vices dis­rupts this in­form­a­tion spillover to lend­ing de­cisions. We show that FinTech com­pet­i­tion can re­duce or in­crease the price of pay­ment ser­vices charged by banks. Over­all con­sumer wel­fare de­pends on the con­sumer's affin­ity for bank ser­vices. Those with a high affin­ity may be worse off, whereas those with a low affin­ity be­ne­fit from cheaper ac­cess to pay­ment ser­vices. Policies that give con­sumers com­plete con­trol of their pay­ment data break the bank's ver­tical in­teg­ra­tion of pay­ment and lend­ing, but such policies can also harm con­sumers. Our res­ults high­light the com­plex con­sequences of re­cent reg­u­la­tion such as PSD2 in the EU and the Open Bank­ing ini­ti­at­ive in the UK, espe­cially their het­ero­gen­eous im­pact on con­sumers.



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