Open Data and Api Adoption of U.S. Banks

Bank adoption of external application programming interfaces (APIs) enables bank customers to share their data more efficiently and securely with other third-party financial institutions and FinTechs, thus enabling open banking and bank data portability. Analyzing determinants of API adoption by U.S. banks from 2007 to 2022, we show that banks that adopt APIs tend to face lower competitive pressure and are less capital-intensive. 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 that encouraged greater bank data portability. We find that APIs’ ability to facilitate data access and sharing improves bank information flows and supports banks’ loan and deposit services which form the foundation of notable improvements in bank performance. Overall, our results on the determinants and implications of API adoption have important policy implications for the discussion on open banking regulation and bank data portability.