FinTech Disruption, Payment Data, and Bank Information*
We study the impact of FinTech competition on a monopolist bank that bundles payment processing and lending. In our model, consumers' payment data contain information about their credit quality, hence valuable to the bank when making loans. Under mild conditions, consumer surplus in the loan market is also higher ex ante if the bank observes their payment data. The bank internalizes the value of this information when pricing its payment services, as do consumers when choosing a payment processor. Competition from FinTech firms specializing in payment services disrupts this information spillover to lending decisions. We show that FinTech competition can reduce or increase the price of payment services charged by banks. Consumers who value bank relationships highly could be worse off, whereas those with low bank relationships benefit from cheaper access to payment services. If FinTech firms also make loans or sell consumer data to the bank, consumers with low bank relationships receive an additional benefit of gaining access to more informed interest rates, whereas consumers with strong bank relationships could suffer from a potentially higher price of payment services. Finally, policies that give consumers complete control of their payment data break the bank's vertical integration of payment and lending, but the welfare impact of such policies is ambiguous and heterogeneous across consumers. Our results highlight the complex consequences of recent regulation such as PSD2 in the EU and the Open Banking initiative in the UK, especially their heterogeneous impact on consumers.