Open Banking & the API Economy (12 Days of Fintech)

Our 12 Days of Fintech series continues today with a contribution by Professors Markos Zachariadis of Alliance Manchester Business School and Pinar Ozcan of Said Business School, University of Oxford. Pinar and Markos delve into the question of platform competition with the incumbent banking industry, fueled by progressive regulation known colloquially as "open banking".

In the European Union, it's called the Payment Services Directive - 2 (PSD2). In the UK and in Australia the acts are known as Open Banking. Elsewhere around the world policymakers have taken or are taking steps to mandate the creation of capabilities that empower consumers to reclaim control of their personal financial data.

Banks have been forced by mandate to create APIs so that it is easier for consumers to make their personal financial data accessible to other institutions. This access can, among other things, make it easier to get new kinds of loans, allow people to manage finances better by creating "dashboards" that aggregate all of their accounts, and even make it easier to move from one institution to another.

Fortunes have been created by these APIs opening up banks - notably Finicity's acquisition by Mastercard, and (following Visa's failed attempt at acquisition) Plaid's "decacorn" status minted by VC fund Altimeter with a $425 million financing at a $13.4 billion valuation. Why is all this money sloshing around? Because technology is now breaking oligopolies, creating more choice for consumers and more competition for sluggish incumbents.

Find out more about the economics, implications, and challenges that Open Banking has created in Markos and Pinar's chapter...

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Global Fintech: Financial Innovation in the Connected World

How the global financial services sector has been transformed by artificial intelligence, data science, and blockchain.

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The opinions in this column are my own, and do not necessarily reflect those of Imperial College Business School, Esme Learning, ADEX, or any other entity with which I am affiliated. My private investment & advisory portfolio is disclosed at?www.VisionaryFuture.com.

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Catch up on the back posts in?12 Days of Fintech!

#1 Fintech: The Convergence Revolution

#2: Edge Effects