Article

Difference-in-Differences Estimation of Open Banking Policy Reforms on FinTech Market Structure and Digital Economic Output

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Abstract

This study investigates the causal impact of Open Banking policy reforms on FinTech market structure and digital economic performance across 40 countries over a 12-year period using a multi-period Difference-in-Differences (DiD) framework. Leveraging staggered policy adoption and a newly constructed Policy Intensity Index, the analysis integrates 1,200 country-year observations, 6 major macro-financial databases, and 14 regulatory sources. The findings demonstrate that Open Banking reforms significantly increase digital economic output by 8.4% to 12.1% on average, depending on model specification and regulatory depth. Event-study estimates further reveal that treatment effects become statistically significant beginning one year after implementation, growing steadily through year +4, with cumulative effect sizes reaching 0.22–0.25 standard deviations, indicating progressive and compounding economic gains rather than short-term fluctuations. The study also uncovers substantial structural shifts in FinTech market concentration. In treated countries, the Herfindahl–Hirschman Index (HHI) declines from 0.245 (pre-reform) to 0.190 (post-reform), while control countries exhibit no meaningful change (stable around 0.230), suggesting that intensified competition is driven directly by Open Banking regulations. Heterogeneity results indicate that policy intensity is a critical determinant of effectiveness: low-intensity frameworks yield only modest improvements (β = 0.031), medium-intensity reforms show moderate gains (β = 0.087), and high-intensity regimes generate the strongest impacts (β = 0.142), confirming that deeper regulatory designs amplify market and economic outcomes. These findings offer important insights for policymakers seeking to optimize regulatory design, harmonize API standards, and promote innovation-driven financial inclusion.

Keywords: Open Banking, FinTech, Digital Economy, Market Structure, Difference-in-Differences, Event Study

How to Cite:

Fatmah, H. K. & Hananto, A. R., (2025) “Difference-in-Differences Estimation of Open Banking Policy Reforms on FinTech Market Structure and Digital Economic Output”, FinTech Innovation Journal 1(2), 185-206. doi: https://doi.org/10.63913/ftij.v1i2.95