While PSD2 and Open Banking in the UK have not been yet transposed into national
law, many providers have already started the process of outlining their strategies to
take advantage of the opportunities that the new payments ecosystem will create.
However, it is still unclear what the effect of such regulation will be and whether this
will indeed create new opportunities for the various actors in the market and in what
way. Prior regulatory reforms with the aim to enhance competition in various EU
network industries such as telecommunications, energy and transport, have
generally been associated with long term lower price levels, expanded outputs, and
labour productivity gains (Martin, et al., 2005). Empirical findings also tend to confirm
that, ultimately, such reforms improved consumers’ welfare and led to better quality
of services and investments in R&D and innovation. However, such results often
depend on the capacity of the industry participants and the labour market to adjust to
the new economic situations.
Examples from energy and telecommunications sectors show that this kind of
regulatory intervention aims to infuse competition at industries where incumbents
retain a dominant position and market power that leads to monopolistic behaviour at
the expense of the end customer. By allowing third party access to the existing
transmission and distribution network of incumbents, regulators help “unbundle” or
“separate” services to create a more level playing field. Regulators can use such
regulatory approaches along with advanced technology to tackle issues such as
price discrimination, cross subsidies, and high barriers to entry that are often present
when incumbents hold high market power with limited competition. It still needs to be
seen what effects such policies will have in the banking sector and how incumbent
companies as well as new entrants will respond. The next two sections discuss the
role of open APIs and digital platforms in facilitating this kind of regulatory reform.
1. Deconstructing APIs
At a very basic level, an application programming interface, or API, is “a way for two
computer applications to talk to each other over a network using a common
language that they both understand” (Jacobson et al., 2012). Editor-in-Chief of
ProgrammableWeb.com, David Berlind describes APIs as “electrical sockets that
have predictable patterns of openings”
1
into which, other applications that match
those patterns can “plug in” and consume them in the same way electrical devices
consume electricity. While these sound like generic statements, the benefits and
functionality of APIs can be much clearer when we consider the context in which
they are realised. For example, APIs can be used by firms internally, to integrate
diverse systems and allow for the exchange of data across different departments by
performing API “calls” or sending queries to an API server. This systematic way of
sharing data can make it easier for internal teams to collaborate and access
information when and how they need it, thus helping to interconnect services and
business processes across the organisation as well as improve employee
productivity and even create better omni-channel experiences for customers (Nijim
and Pagano, 2014). In a similar way, APIs can also be used to expose business
assets such as information, a service, or a product to external audiences, hence,
reaching beyond the boundaries of the firm. Such external APIs can provide further
1
https://www.programmableweb.com/news/what-api-exactly/analysis/2015/12/03
