When FinTech Competes for Payment Flows

When FinTech Competes for Payment Flows

Christine A. Parloury, Uday Rajanz, Haoxiang Zhu

LHA Working Paper No.LHA20201001

May 2020


We study the impact of FinTech competition in payment services when banks rely on consumers’ payment data to obtain information about their credit quality. Competition from FinTech payment providers disrupts this information spillover, reducing the bank's loan quality and profit. FinTech competition benefits consumers with weak bank affinity (financial inclusion improves), but may hurt consumers with strong bank affinity. We consider three regimes in which payment information flows back into the credit market: FinTech lending, data sales, and consumer data portability. All three regimes improve the quality of loans, although their effects for bank profit and consumer welfare are ambiguous. Our results highlight the important and complex trade-off between consumer welfare and the stability of banks following FinTech competition in payment.


JEL classification: D43, G21, G23, G28

Keywords: FinTech, BigTech, payment, competition, banks, credit market


Christine A. Parloury: Haas School of Business, University of California at Berkeley, parlour@berkeley.edu                 

Uday Rajanz: Stephen M. Ross School of Business, University of Michigan, urajan@umich.edu

Haoxiang Zhu: MIT Sloan School of Management and NBER, Fellow of Luohan Academy, zhuh@mit.edu

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