Open Banking: A Case Study in the Benefits of Interoperability

Just months after many of the mandates in the European Union's Digital Markets Act (DMA) have gone into effect, interoperability and data portability are fresh on the policy world’s mind. But interoperability and data portability mandates, which aim to decentralize data governance and increase openness, precede the DMA. Over the past several years, several countries, including the United States, have slowly embraced open banking—a regulatory regime that requires banks to provide third-party financial service providers access to consumer financial data through APIs. While this regulatory push has bolstered a marketplace of innovative fintech solutions such as Rocket Money, achieving some of interoperability’s policy goals, the dominance of large banks has limited open banking’s potential to decentralize power effectively.

This paper uses open banking to illustrate the harms of centralized platforms and how interoperability-based interventions like open banking aim to disrupt these power structures. However, it argues that without efforts to break up concentrated marketplaces first, such mandates will ultimately benefit existing dominant players more than new entrants.

The open banking case study shows that technological changes alone cannot reshape power structures. Policymakers must prioritize decentralizing decision-making power in industries before true technological decentralization can occur. Only then can interoperability mandates achieve their goals of fostering competition, innovation, and consumer empowerment.

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