Open banking enables loan applicants to easily and securely share payment data with prospective lenders. In theory, this could broaden credit access by reducing information asymmetry but could also lead to price discrimination that exploits individuals’ preferences and behavioral traits. Using loan application data from a leading German FinTech lender in consumer credit, I document that observably riskier applicants (with lower credit scores) are more inclined to disclose data. Data sharing improves loan approvals, reduces interest rates, and is associated with lower ex post defaults. These findings suggest that data sharing via open banking can reduce adverse selection.

We model competition between banks and a bigtech platform that lend to a merchant with private information and subject to moral hazard. By controlling access to a valuable marketplace for the merchant, the platform enforces partial loan repayments, thus alleviating financing frictions, reducing the risk of strategic default, and contributing to welfare positively. Credit markets become partially segmented, with the platform targeting merchants of low and medium perceived credit quality. However, conditional on observables, the platform lends to better borrowers than banks because bad borrowers self-select into bank loans to avoid the platform's enforcement, causing negative welfare effects in equilibrium.

We hypothesize and find evidence that banks use venture investments in fintech startups as a strategic approach to navigate fintech competition. We first document that banks’ venture investments have increasingly focused on fintech firms. We find that banks facing greater fintech competition are more likely to make venture investments in fintech startups. Banks target fintech firms that exhibit higher levels of asset complementarities with their own business. Finally, our instrumental variable analyses show that financial investments result in increased probabilities of operational collaborations and knowledge transfer between the investing bank and the fintech investee.