Acceptance of Open-Banking Technology in Consumer Lending Applications

Master's Thesis , 2022 , 92 Pages , Grade: 1,0

Economics - Finance

This master thesis investigates the influencing factors on consumers’ willingness to share their personal and financial information through open-banking technology in different financing and lending scenarios (e-commerce, car financing, and mortgage). To achieve this, a survey-based empirical study was conducted, covering a variety of questions regarding demographic factors as well as measured preferences and stances along the dimensions of tech-savviness, open-banking knowledge, privacy concerns and financial literacy. The analysis of over 143 survey responses shows how these factors influence and explain, to what extent and under which conditions a consumer is willing to let a company digitally take a direct look into his bank account. The gained results and insights provide a basis to define best practices and use cases for scenarios in which open-banking technology can add value to all parties involved.

Since January 12th, 2016, the EU's second payment services directive (PSD2) has been in force. A key point within the PSD2 is the obligation of banks to make the information of their customers and their associated bank accounts available to third parties via standardized interfaces. A concept that is widely referred to as open-banking. One major field of application of open-banking technology lies within consumer credit application processes. The main idea is that lenders (financial institutions as well as non-financial / retail companies) can get access to the information contained in bank accounts, such as transaction history and balances, by explicit consent of the consumer. The purpose of this is to make more informed decisions as to whether or not to extend credit to the specific person in scope.

Inhaltsverzeichnis (Table of Contents)

• 1 Introduction
  • 1.1 Motivation
  • 1.2 Objectives
  • 1.3 Structure / Outline
• 2 Consumer Lending: An Overview
  • 2.1 Historic evolution of consumer credit
  • 2.2 Common credit assessment practices
    • 2.2.1 Credit scoring
    • 2.2.2 Affordability assessment
  • 2.3 Information asymmetry and the role of credit bureaus
  • 2.4 Socio-economic impact of consumer lending, financial inclusion, and social debates around credit scoring
  • 2.5 Recent developments in consumer lending, alternative data and fintech
    • 2.5.1 Digitization and increasing expectations toward the user experience
    • 2.5.2 Digital footprints and alternative data
    • 2.5.3 FinTech
• 3 Open-Banking
  • 3.1 The second European payment services directive and an introduction to open-banking
  • 3.2 Exemplary open-banking user-flow for authentication
  • 3.3 Application of open-banking in consumer lending and its benefits
  • 3.4 Data privacy issues around open-banking and the status quo to its application
• 4 Acceptance of Open-Banking Technology in Consumer Lending Applications
  • 4.1 Problem description and research question
  • 4.2 Review of similar literature to the subject matter
  • 4.3 Derivation of research hypotheses
  • 4.4 Approach of the study
    • 4.4.1 Survey design and structure
    • 4.4.2 Sampling
    • 4.4.3 Approach of analysis
  • 4.5 Analysis results
    • 4.5.1 Descriptive statistics
    • 4.5.2 Testing for Cronbach's alpha
    • 4.5.3 Inferential analysis and regression results
  • 4.6 Hypothesis testing
  • 4.7 Further analysis
    • 4.7.1 OLS regression on single likert items
    • 4.7.2 OLS regression on demographic and other categorical questions
    • 4.7.3 T-test on offered benefits
• 5 Conclusion and Outlook

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This master thesis aims to investigate the factors influencing consumer willingness to share personal and financial information through open-banking technology in various lending scenarios. It focuses on understanding consumer attitudes towards this technology in the context of e-commerce, car financing, and mortgages.

• Acceptance of open-banking technology in consumer lending
• Impact of demographic factors on consumer willingness to share data
• Role of tech-savviness, open-banking knowledge, privacy concerns, and financial literacy
• Analysis of consumer preferences and stances in different lending scenarios
• Definition of best practices and use cases for open-banking technology

Zusammenfassung der Kapitel (Chapter Summaries)

The thesis begins with an introduction outlining the motivation behind the study, its objectives, and structure. Chapter 2 provides a comprehensive overview of consumer lending, exploring its historical evolution, common credit assessment practices, and the role of credit bureaus. It also examines the socio-economic impact of consumer lending, financial inclusion, and ongoing debates surrounding credit scoring. This chapter concludes with a discussion of recent developments in consumer lending, including the emergence of alternative data and fintech solutions. Chapter 3 delves into the concept of open-banking, explaining its origins in the second European payment services directive (PSD2) and exploring its potential application in consumer lending. It highlights the benefits of open-banking technology while addressing data privacy concerns and the current status quo of its implementation.

Chapter 4, the core of the research, describes the problem description and research question driving the study. It reviews relevant literature and formulates research hypotheses. The methodology section outlines the survey design, sampling strategy, and analytical approach used. The results section presents descriptive statistics, tests for Cronbach's alpha, and conducts inferential analysis and regression analysis. The chapter concludes with hypothesis testing and further analysis, exploring the relationships between specific variables through various statistical methods.

Schlüsselwörter (Keywords)

This thesis focuses on the following key topics: open-banking, consumer lending, risk management, PSD2, Account Information Services, credit application process, risk assessment, credit decisioning, FinTech, financial inclusion.

• College: Karlsruhe Institute of Technology (KIT) (Department of Finance and Banking)
• Grade: 1,0
• Author: Thomas Nöding (Author)
• Publication Year: 2022
• Pages: 92
• Catalog Number: V1353583
• ISBN (PDF): 9783346863423
• ISBN (Book): 9783346863430
• Language: English
• Tags: open banking, open-banking, PSD2, Consumer Lending, Lending, Credit, Credit Assessment, Open Data, Alternative Data, Affordability