Is the future of banking “Open”?:
A case study on the strategic implications of open banking in Canada and the US
Technological and digital innovation has often been credited for having significant strategic implications for firms by shifting the competitive landscape and changing the market dynamics in an industry (Porter, 1985). It is also believed that technological change and intensified competition in a sector can potentially offer benefits to end customers through the quality increase and lower prices of products and services (Matsa, 2011). The recent wave of digitization in the banking industry - more specifically in payments - and the use of access and network technologies have created various opportunities for new entrants (such as fintechs and challenger banks) to claim some of the business but also for established banks to reconsider their position in the market and rethink their value propositions for their customers. In that context, banking institutions can either choose to open up to and embrace change through the opportunities that technology offers by interacting with the greater ecosystem of market participants and other service providers, or defend their position by focusing their efforts on developing competitive solutions for all customer and product segments and limiting access to their systems and platforms. The recent implementation of Payment Systems Directive II (PSD2) in Europe, as well as the open banking initiative in the UK (CMA) push towards the creation of an open-banking environment through the introduction of open application programming interfaces (APls) but the question still remains: what will the banks' response be to this regulatory change?; and more importantly, will this change lead to a sustainable environment that will lead to more innovation and consumer benefits? Our research aims to explore the strategic implications of open banking in Canada and the US, for banks, fintechs and other financial institutions, and the potential benefits and challenges/risks for them and their customers. In particular, our research will include questions such as:
- What changes will open banking bring to the bank's competitive position in the market and how it will affect their profitability (revenues and profit margins) from the various services they provide (including lending and deposits)?
- What are the relevant risks associated with open APls and how can these be mitigated using digital and other strategies?
- Which market segments and products are going to be more attractive for banks and fintechs and how far will banks will be willing to go in adopting open interfaces such as open APls?
- Will a 'platform' strategy be profitable for incumbents that own most of the deposit and lending market share? How will upcoming challenger banks and fintechs position themselves in this landscape where there is no regulation yet to impose openness in the market?
- What are the challenges (e.g. security, privacy, trust, etc.) involved both for the banks and their customers moving forward in an open banking future?
Warwick Business School
Markos Zachariadis is Associate Professor of Information Systems & Management at Warwick Business School, University of Warwick & FinTech Research Fellow at the Cambridge Centre for Digital Innovation (CDI), University of Cambridge. Markos' research sits at the cross section of economics of digital innovation, financial technology studies, and network economics, and has studied extensively the economic impact of ICT adoption on bank performance, the diffusion of payment networks, and the role of data & standards in payment infrastructures (SWIFT) and financial markets (LEI) among other things. His research has been published in top academic journals such as MIS Quarterly, Research Policy, and Business History and has been awarded the NET Institute Award (NYU Stern Business School) for his study on the economics of payment networks, and the SWIFT Institute & SMS awards for his research on Open APls and Digital Transformation in Banking.
Prior to joining Warwick Business School, Dr. Zachariadis was a Research Associate at the University of Cambridge Judge Business School, a Visiting Scholar at London Business School and a Researcher at the Centre for Economic Performance, LSE. He studied economics at the University of Patras, Department of Economics and holds an MSc and PhD from the London School of Economics, Department of Management.