Open Banking: does it open up a new way of banking? A case of financial technology adoption from a consumer's perspective

Abstract

Open Banking, enabled by a common technology standard API (application programming interface), is a financial technology that allows consumers to take control of their financial data and facilitates the exchange of those information among financial institutions. Currently, consumers’ financial data are scattered among and stored within the financial institutions with which they have a relationship. With a lack of aggregated data and portability, consumers are often provided with less competitive offers because individual institutions assess them based on a partial picture. It is also not easy for consumers to switch between institutions. With Open Banking, consumers can give consent to financial institutions to exchange their financial data in order to obtain competitive offers. It also facilitates easy offer comparison and switching of accounts. Open Banking is driven by many governments to promote consumer fairness and competition. Consequently, its adoption may lead to significant change in consumers’ banking behaviour and loyalty. It may also bring profound implications to the industry in terms of business model, customer management and policy setting. Given that Open Banking is a new concept, there is no extant research with which to understand its adoption. In particular, its financial technology nature is inherent with risk and trust concerns but presenting interesting research opportunities. This study aims to answer the research question of: What are the key factors of consumers’ adoption for Open Banking and how do the factors affect the adoption?. It applies an adoption model UTAUT (unified theory of acceptance and use of technology) structurally integrated with perceived risk, initial trust and financial literacy. A quantitative research was done in Australia and partial least square structural equation modelling (PLS-SEM) was performed to analyse the results. The findings suggest that performance expectancy, effort expectancy, social influence and perceived risk are direct antecedents of usage intention. While performance expectancy is the most influential factor, social influence comes second, with a strong mediating effect through performance expectancy to affect usage intention. Initial trust, although not a direct factor, plays an important total effect. It can alleviate perceived risk and positively reinforces performance expectancy and effort expectancy. On the other hand, effort expectancy can also mitigate perceived risk. Furthermore, financial literacy puts a scepticism effect on initial trust i.e. the higher the financial literacy, the lower the initial trust towards Open Banking. This research contributes empirical understanding towards a new domain by extending an adoption model and demonstrating an integrated approach to theorise the adoption. With the rise of financial technologies this integrated approach advances the body of knowledge by providing a holistic understanding of the roles of perceived risk, trust and financial literacy in adoptions. The understanding of their interactions with traditional adoption factors illuminates new, interesting insights for future research. For practical contributions, this study provides valuable and actionable information for business managers, technical developers and marketers to develop strategies for business, product development, targeting and marketing. It also provides useful recommendations to policy makers on an optimal governance approach balancing the interest of promoting adoption and protecting consumers.