In recent observations from the Fintech Snark Tank, the term “open banking” is seen as overused and under-defined. Two recent incidents include an academic study equating the use of APIs with open banking, and a Pymnts article stating that 46% of US consumers are ready for open banking. The report from the academic study found that banks adopting APIs tend to face lower competitive pressure, are less capital-intensive, and experience an increase in ROA and a decrease in loan loss provisions.
However, the causal inference that adopting APIs leads to increased ROA and a decrease in loan loss provisions is considered shaky. The report also raises concerns about unintended consequences of open banking, such as the loss of customer information due to fintech competition disrupting information spillover within banks. Proponents of open banking are urged to address these unintended consequences that might arise.
When it comes to open banking payments, it is noted that 46% of US consumers say they are ready for it. However, it turns out that the article was actually talking about open banking payments, not open banking as a whole. Open banking payments allow users to complete transactions directly from their bank accounts using online banking credentials. Younger consumers are said to be more interested in open banking payments, suggesting that providers should focus their marketing efforts on this demographic.
The term “open banking” is criticized as being nearly meaningless. The academic study claims to provide insight into the role of competitive pressures on the decision to adopt an open banking strategy, but it is pointed out that there is no such thing as an “open banking strategy.” A survey shows that only 55% of Americans have heard of open banking, and just 32% believe they understand it, indicating that it may be premature to say Americans want or are ready for open banking.
In conclusion, the term “open banking” continues to be used without a clear definition. While some studies suggest potential benefits of adopting APIs and open banking, there are concerns about unintended consequences and a lack of understanding among consumers. It is important for proponents of open banking to address these issues and provide more clarity on what open banking truly entails.
