Abstract
The drive for open data in financial services is reflected in banks’ adoption of external application programming interfaces (APIs), a technology that provides bank customers with greater access to their banking and transaction data and enable them to share their data with other third-party financial institutions and FinTechs, also promoted as “open banking”. We analyze determinants of API adoption by U.S. banks and subsequent changes in bank performance during the period 2007 to 2022. We show that banks that adopt APIs experience an increase in Return on Assets (ROA) and Tobin’s Q and a decrease in loan loss provisions, particularly after President Biden’s executive order announcement that encouraged greater data portability and ownership of bank customers. Consistent with existing literature, we find greater effects for smaller banks with lower levels of credit risk and competitive pressure. Overall, our study shows the potential impact of open banking and data portability on bank competition and performance and highlights broader implications for financial inclusion and borrower welfare.