Essays on Open Banking

Open banking enables businesses and households to share their bank financial data with third parties. This thesis hopes to provide empirical evidence, using novel datasets and rigorous approaches, to better understand the impact of open banking on small businesses and households. In the first chapter, I introduce open banking, document its global adoption, and conduct a comprehensive literature review. In the second chapter, I examine the effect of open banking on collateralization in small business lending. For identification, I exploit institutional features of the UK’s open banking policy that creates a discontinuity in firms’ eligibility to share data. Using a novel loan-level dataset covering the entire UK secured business loan market, I document that open banking eases the pledge of assets like accounts receivable and inventory. Firms eligible to share data are more likely to pledge such assets as collateral, thereby improving their access to credit. These effects are more pronounced for firms facing greater information asymmetry and those with greater information available to share. These findings highlight the role of open banking in reducing collateral constraints by mitigating information asymmetry. In the third chapter, we use a representative survey conducted by the FCA to document two main distinct reasons consumers share their financial data: Financial management (advice OB) and borrowing (credit OB). We find that there is little overlap between users of advice and credit OB, and consumers are more likely to use both OB products if they are willing to share their data, are employed, or have missed bill payments. We further provide suggestive evidence that open banking use improves consumer financial outcomes: Advice OB is associated with greater financial knowledge and credit OB is associated with greater credit access. These insights contribute to the broader understanding of how open banking shapes consumer financial behavior and well-being.