When Tania Babina, assistant professor in finance at Columbia Business School, began studying open banking several years ago, her friends questioned her interest, wondering why she would focus on open banking when it would never come to the United States.
Open banking, which empowers customers to share their banking transaction data with fintech companies and other banks, has been promoted and policies around adoption have been introduced in scores of countries around the world, including the United Kingdom. But in the United States, big banks “don’t want to lose the advantage of knowing you better than anybody else,” Babina says. “They can see how you spend and how much you earn, and then use that competitive advantage to make more money from you.”
According to Babina, open banking policies represent one of the most important regulations aimed at transferring the ownership of consumer data from banks to their customers. “Open banking breaks bank data monopolies,” she says. “This allows consumers to decide how to benefit from their own financial data.”
Convinced of the importance of this new phenomenon, Babina was undeterred from studying open banking. Persistence is one of her character traits: “It’s a story of my life, I guess.”
So is winning over her naysayers. Babina went on to write the paper “Customer Data Access and Fintech Entry: Early Evidence from Open Banking,” with co-authors Greg Buchak of Stanford University and Will Gornall of the University of British Columbia’s Sauder School of Business. Their work examines the impact of open banking on fintech and consumers.
The researchers found that following the adoption of open banking policies, fintech venture capital investment increased by 50 percent, with more comprehensive policies showing larger effects. Importantly, this increase was driven by countries that mandated banks share customer data upon request, underscoring the reluctance of banks to share voluntarily.
Using a novel dataset documenting governments in 49 countries that have implemented open banking government policies and 31 more in active discussions, the researchers showed that “customer-directed data sharing increases entry by improving entrant screening ability and product offerings but harms some customers and can reduce ex-ante information production.”
The timing of the paper was perfect. It turns out that the United States is interested in open banking. In 2021, President Joe Biden issued an executive order on improving competition in the United States, which also encouraged “the Consumer Financial Protection Bureau (CFPB) to consider crafting rules under section 1033 of the Dodd-Frank Act in support of open banking.”
Babina says Biden’s order was significant “because it essentially directed government agencies to improve competition policies. Open banking regulation is an example of trying to improve competition by breaking bank data monopolies.”
The CFPB was listening. On October 16, 2022, the CFPB announced it will introduce rules around open banking regulation in 2023, which should be fully binding by 2024. The rule will mandate that banks allow customers to seamlessly share financial transactions data upon request.
Working With Purpose
Babina is drawn to research that informs and improves society. “I work on topics that are relevant for policy issues and current discussion,” she says. That’s why the Ukrainian national also has been drawn to studying the economics of the Russian invasion of Ukraine. She co-founded Economists for Ukraine along with researchers from the University of California, Berkeley, Emory University, and the University of Illinois Urbana-Champaign. The organization helps provide humanitarian support for civilians in Ukraine. Babina also is a member of Stanford’s International Working Group on Russian Sanctions. Its goal is to provide expertise and experience to governments and companies around the world by assisting with the formulation of sanctions proposals that will increase the cost to Russia of invading Ukraine. “There’s only one way Putin will stop,” Babina says. “That’s when he doesn’t have any money.”
The sanctions group, co-led by Michael McFaul, former US ambassador to Russia, and Andriy Yermack, head ofPresident Zelenskyy’s administration, has shared its sanctions proposals with key government officials around the world. “Seventy percent of our suggestions have been implemented,” Babina says. “It’s really a meaningful effort.”
It’s a personal effort for Babina, as well, whose family is now in Kiev after fleeing Donbas in 2014 during the first Russian invasion. Her hometown, only a few miles from Bakhmut, has been pummeled by Russian artillery, and Babina is devastated by the suffering. “So I try to contribute in my own small way, which is economic analysis,” she says. “I’m not a trade economist, but I’ve learned because we’re informing people who make decisions. We have influenced policymakers around the world on implementing sanctions against Russia.”
Labor and Innovation
Over the course of her academic career, Babina has largely focused on topics in innovation and labor, often working at the intersection of the two. Her interests are a good fit for CBS, where entrepreneurship and innovation, along with 21st century finance, climate and sustainability, the digital future, and business and society, are key pillars of the dean’s vision for the school.
Babina’s interest is in the human side of innovation. “The way I think about this is, human capital is the most important source of innovation,” she says. “So most of my papers look at the impact of innovation on labor or vice versa. For example, automation. To me, that’s a really obvious example of how innovation might be impacting labor, with people losing their jobs because jobs can be automated.”
Currently, Babina and her team have been challenging assumptions about labor automation with their studies of investment in artificial intelligence. For example, in her paper “Artificial Intelligence, Firm Growth, and Product Innovation,” co-authored with Anastassia Fedyk of the University of California, Alex Xi He of the University of Maryland, and James Hodson of the AI for Good Foundation, Babina and her team show that instead of firms using AI tools to automate and replace labor, they largely use AI tools for product innovation. “Surprisingly, we found that mostly firms grow sales with AI because they create more products and better products. Essentially, we didn’t find that AI replaces labor, at least so far.”
In fact, Babina says, “I’m going to make a bet that humans will continue to be important for the long run, especially for innovation.”
In a second paper on AI, which appears in the National Bureau of Economic Research’s volume on Technology, Productivity, and Economic Growth, Babina and her team looked at changes in labor composition at firms using AI. The paper, “Firm Investments in Artificial Intelligence Technologies and Changes in Workforce Composition,” shows that while firms using AI did increase labor, it is “specifically a high-skilled, educated, tech-background type of workforce that gets added.” So, while AI does increase the labor force at firms, the distribution of new jobs across a company is tilted toward the high-skilled workers.
Studying these and other forms of inequality in the labor and innovation space is on Babina’s list of things to do within the nascent field, as is understanding the macro implications of AI. “Right now,” she says, “it’s very new research. I think it’s an open question as to what kind of impact AI is going to have on labor.”
A Leitmotif
A prolific researcher, Babina also has recently published papers on federal funding availability and university innovation (“Cutting the Innovation Engine: How Federal Funding Shocks Affect University Patenting, Entrepreneurship, and Publications”), the impact on labor of corporate money in politics (“The Impact of Money in Politics on Labor and Capital: Evidence from Citizens United v. FEC”), how financial distress affects workers’ careers (“Destructive Creation at Work: How Financial Distress Spurs Entrepreneurship”), and the organization of innovation (“Financial Disruptions and the Organization of Innovation: Evidence from the Great Depression”).
Going forward, “I will continue to work on topics that can inform active policy debates on innovation and labor-related topics,” Babina says. “The world is changing very quickly. The ‘new oil’ behind this acceleration is the rapid increase in data accumulation, which fuels digitization and new innovations like AI and fintech. Researchers play a key role in studying and understanding these changes and their economic impact.”