How Can Data Sharing Help Improve Access to Credit?

The growing digitization of consumer transactions, payment transfers, government records, search behavior, and social communication is generating compelling new data sources that are expected to influence credit underwriting by lending institutions and borrowing behavior by consumers. Many analysts suggest these new data sources can help to expand access to credit among consumers and small businesses in low- and middle-income countries (LMICs), in particular, and advocate for initiatives like Open Data and Open Banking to enable newer entrants to share access to data. Other analysts note the potential for organizations like Big Tech companies with comparative advantages in access to new proprietary data sources to quickly outcompete incumbent lenders and threaten the effectiveness of regulatory regimes designed to ensure competition, consumer protection, and financial stability. Whether perceived as an opportunity or a threat, new data sources are likely to continue to disrupt lending.

This policy brief offers an up-to-date review of the emerging academic literature on the economics of data sharing and access to credit. It aims to provide practical intuition and a common vocabulary for decision-makers engaged in the high-stakes work of designing new data-use technologies and data-sharing regulations. Key lessons include the importance of considering the incentives of organizations to invest in new data collection if they are compelled to share those data; how payment and credit underwriting services can be complements or substitutes depending on the structure of the payment and lending markets; and how empowering consumers to share data does not necessarily improve lenders’ access to information if consumers value privacy differently.