3. Data, Market Failures, and Regulatory Intervention: The Case of Open Finance

3.1. Context and Strategic Importance

Data is one of the most valuable assets in the digital economy, yet its distribution is subject to significant market failures. Incumbent firms often have little incentive to share data, even when doing so would produce broad societal benefits. This section uses the EU's Open Finance initiative to analyze how governments intervene to regulate data access via mandated APIs, using technology as a tool for market reform.

3.2. Economic Properties of Data and Market Inefficiencies

• Data as a "Club Good": Data is non-rival but excludable. Entities controlling data can restrict access, creating private "clubs."
• Positive Externalities: Social value often exceeds private value. Sharing financial data can lead to more competition and consumer welfare—benefits the original holder cannot capture alone.

In finance, these manifest as:

• Asymmetric Information: Incumbent banks have a deep information advantage.
• Lack of Incentives: No private incentive to share data that invites competition.
• Network Externalities: First-mover advantages and high switching costs entrench incumbent power.

3.3. Open Finance as a Regulatory Solution

The EU's transition from PSD2 (Open Banking) to FIDA (Open Finance) represents a deliberate intervention to correct these failures. PSD2 failed partially due to the lack of compensation models—mandating free access created a disincentive to invest in high-quality APIs.

FIDA aims to address this by mandating industry-led "financial data sharing schemes," establishment of common API standards, and critically, viable compensation models.

3.4. Concluding Transition

Having examined the regulatory structure, we now turn to the real-world economic impacts on participants in the financial market.