The Effects of Bank API Adoption on Bank Efficiency and Credit Risk

The banking and financial services industry has been witnessing a large-scale digital transformation. The opening of bank customer data through external Application Programming Interfaces (APIs) has created competitive and regulatory pressure on banks to innovate and provide customers with more control over their data. Traditional incumbent banks face an inherent dilemma regarding the adoption of bank APIs as it could improve the service offerings to bank customers, but also risks removing the banks’ monopoly on valuable customer data. Our empirical analysis of the implications of API adoption for bank efficiency and credit risk shows that API adoption has significant effects on efficiency, with market concentration having a moderating effect and Read-only and Read-Write APIs yielding different effects on bank efficiency and credit risk. Our study highlights the need for banks to carefully consider the type of APIs to maximize benefits while mitigating potential risks.