Open Banking Adoption and Banking Competition: Implications for Lending Rates & Disintermediation
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Abstract
This study examines the impact of Open Banking adoption on
lending rates, spreads/NIMs, and banking disintermediation in
Indonesia. Using a quarterly bank-level panel (2018–2025) and a
causal identification strategy—a dynamic panel (System-GMM) to
capture credit price persistence, and stepwise difference-indifferences
(DiD) with event study—we construct a composite Open
Banking Index (OBI) from four pillars: API readiness, API usage,
data openness, and partnership depth. Results show that an
increase in OBI is negatively and significantly correlated with
lending rates and NIMs; DiD estimates show a decline in lending
rates immediately after adoption and a plateau within 4–6 quarters,
while a decline in LDR indicates moderate disintermediation.
Mechanism analysis indicates competition as the primary
transmission channel: OBI lowers the Lerner Index and makes the
Boone indicator more negative, thereby suppressing bank pricing
power. Nonlinearity with the OBI maturity threshold (≈70/100)
above which the interest rate reduction effect is amplified is found,
as well as greater heterogeneity among small/medium banks, more
competitive markets (low HHI), and banks with high digital maturity.
The findings suggest a policy focus on deepening the
implementation of Open Banking (API interoperability, consent
management, fair access) to balance innovation, competition, and
banking system stability.
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