Uday Rajan, Global Virtual Seminar Series on Fintech
Date Aired: May 29, 2020
David B. Hermelin Professor of Business Administration, Chair and Professor of Finance and Real Estate
Stephen M. Ross School of Business at the University of Michigan
Uday Rajan is the David B. Hermelin Professor of Business Administration, Chair and Professor of Finance and Real Estate at the Stephen M. Ross School of Business at the University of Michigan. Professor Rajan holds editing positions at the Journal of Finance, Management Science, and the Review of Corporate Finance Studies. He has previously held positions as the President of the Finance Theory Group and as the Director of the Western Finance Association. Professor Rajan’s research interests include the role of credit ratings in the financial markets and on bank regulation; informational frictions; what affects market transactions; and ethical issues with autonomous trading agents.
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 be-tween consumer welfare and the stability of banks following FinTech competition in payment.