Privacy regulation and fintech lending

BIS Working Papers  |  No 1103  | 
02 June 2023



When designing privacy protection regulation, regulators face a challenging trade-off. On one hand, individuals are reluctant to share their personal data due to concerns about potential abuse or misuse. To protect consumers' privacy, regulators may consider limiting or even prohibiting the collection of personal data. On the other hand, data play a vital role for data-intensive firms like fintechs, which rely heavily on personal information to screen and price borrowers. Privacy regulation could thus potentially hinder the growth of fintechs and weaken competition in the financial sector.


Our paper focuses on the effects of the California Consumer Privacy Act (CCPA) on bank and fintech lending in the US mortgage market. The CCPA represents a landmark change in the design of privacy regulation as it aims to protect consumers without imposing general restrictions on information collection. Introduced in 2020, it grants California residents the right to control their data, even after they have shared them with a firm. The CCPA has reduced uncertainty around the use of personal data and has made applicants more willing to share their data. Many other states are now considering the introduction of similar legislation, and the CCPA is serving as a model for the US Congress in developing federal privacy protection regulations. Our paper offers an initial analysis of the CCPA's impact on loan markets.


We find that, following the introduction of the CCPA, loan applications to fintechs increase by significantly more than those to traditional banks, leading to an increase in fintechs' market share by up to 19%. This increase can be attributed to applicants' increased willingness to share their data. Fintechs, taking advantage of this data, expand their utilisation of information beyond traditional credit scores during the application process. Consequently, they engage in more personalised pricing and reject a larger proportion of applications. These findings suggest that fintechs enhance their screening process, leading to an improvement in the quality of their average borrower. As a result, fintechs are able to offer significantly lower loan rates than banks can following the CCPA's implementation. In sum, the CCPA has benefited consumers by providing fintech lenders, equipped with advanced screening technology, with improved access to data.


Individuals have concerns about sharing data, but without access to personal information data-intensive fintechs cannot prosper, nor consumers benefit from their services. Well-designed privacy protection regulation needs to address this conflict. This paper studies how the California Consumer Privacy Act (CCPA), a 2020 privacy law that grants users control over data and mitigates concerns over sharing them, affects bank and fintech lending in the mortgage market. Using a difference-in-differences strategy comparing counties along the California border, we establish that the CCPA increases loan applications to fintechs by significantly more than those to banks, raising fintechs' market share by 19%. Consistent with an improved screening process due to applicants' greater willingness to share data, fintechs engage in more individualized pricing, deny a greater share of applications and increase their use of non-traditional data. In turn, they offer significantly lower loan rates compared with banks following the introduction of the CCPA.

JEL classification: G21, G23, G28

Keywords: data privacy, data sharing, fintech, privacy regulation, CCPA