The Impact of the Contemporary Open Banking Movement on the Social Construction of the Banking Industry

Alasad, Hisham
Cusack, Brian
Petrova, Krassie
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Doctor of Philosophy
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Auckland University of Technology

The banking industry comprises of licensed institutions that offer financial services. Traditionally the banking industry has retained tight control of all information, but the structure and practices have radically changed through Open banking adoption. The Open banking phenomena is a strategy enforced by regulators to re-define the conduct and behaviour of the traditional banking industry with the objectives of enhancing competition and enticing innovation. The principles for change are implemented by restructuring systems, standardising software services (e.g., Application Programming Interfaces APIs), forcing data sharing, and enabling a new banking context. The changes have rebalanced the power relationship between the banking industry and the customers so that customers now have greater access to information and the ability to autonomously transact their own information.

The technology driver enables social technologies and innovation for facilitating the use of digital products that influence a change in the nature and capabilities of social and behavioural interactions. Open banking innovation influences a change in the roles of customers and banks and constructs new realties between them. The focus of this research is to examine the change in the social construction and relationships between customers and banks to determine its degree of influence on the success or failure of the Open banking adoption.

This research is a theoretical socio-technical study within the banking industry under the overarching umbrella of the Information System field. It applies qualitative research methods against secondary datasets. Therefore, it addresses, examines, and theorises the impact of the newly emerged Open banking environment on the banking industry structure, the social construct of a customer’s adaptation behaviour, and the social mechanism of the emergent relationship between customers and banks. The methodology construct comprises of integrating Case study method and Grounded theory method (Straussian Approach) in one framework. The Case study is used to collect and compile secondary datasets in accordance with a rigorous inclusion and exclusion criteria; and then the Grounded theory facilitates the data analysis.

The results show that Open banking drives changes across the banking industry by demanding new relationships between the industry and the customer. From a structural perspective, it creates an environment of opportunity for the social creation of new relationships. It also contributes to the development of the functional aspects of the banking industry by allowing greater freedoms for technologies and the personalisation of banking services. Open Banking adoption intensifies the level of competition with fewer constraints to service and ease of service communication. For example, by rapid service product innovation, and by lowering the industry entry barriers. The new environment attracts new entrants including Financial Technology (FinTech) providers, third party developers, and outsourcing arrangements for information processing. The nature of competition changes from being closed, monopolistic, weak, and limited, to becoming open, competitive, intense, and widely sourced. The research finds a relationship between the emerging customer’s privacy and security concerns, and the degree of competition motivation. From a social perspective, the social attitude of customers changes and their subsequent adaptation or rejection behaviours for new banking products and services, is less predictable.

The research shows that innovation drives the personalisation of new products and services, and an inverse relationship between age segment and positive adaptation behaviour. It finds a direct relationship between customers’ technological literacy and their adaptation or rejection behaviour. It discovers a relationship between the degree of a customer’s awareness and understating of Open banking function and rejection behaviour. From a relationship perspective, Open banking tips the power and control of the traditional relationship between customers and banks towards the customers’ benefit. It removes the sense of loyalty towards original banks. It gives customers a transpired sense of freedom in product selection which changes the boundaries of existing relationships from One è One to become One è Many. The social construct changes from being transactional to a social banking experience. The research finds that the cultivation of social relationships improves customer retention and accelerates the transformation of banks towards becoming social and financial platforms.

This research develops an Open banking adoption model for managers which serves as a high-level planning, guidance, and reference tool for industry practitioners and banks in their Open banking adoption journeys (6.2.5). It puts forward a list of practical suggestions and mechanisms in managing the Open banking adoption. It contributes to the body of knowledge by joining the continuing discussions of demystifying the multifaceted impacts of Open banking adoption and providing starting points for further research. It contributes to the body of IS knowledge by constructing and validating twenty-one generated hypotheses (H1-H21) and discovering twelve direct and inverse relationships (RE01-RE12). The theory generation actions remedy theoretical gaps and the identified issues and problems in the existing literature. The key areas for further research are the emerging privacy and security concerns, the pace of adoption, and determinants for the customers’ adaptation and rejection behaviours.

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