This paper examines how the shift from closed banking to open banking --- where borrower data become accessible to more financial institutions --- affects lending competition, credit availability, and resource allocation in underbanked markets. We develop a common-value auction model with feedback between lending outcomes and banks' financial costs. The regime shift can reduce both competition and credit availability. Moreover, even when open banking boosts competition and expands credit, it may lower resource allocation efficiency --- improving it only when borrowers' potential cash flows are sufficiently high. Less active bank creditors increase the likelihood that open banking outperforms closed banking.