Open Banking in The United Kingdom

Open banking in UK

Facts and figures

UK boasts more than 300 banks and 45 building societies. The 9 largest banks in the UK (referred to as the CMA9) are AIB Group, Bank of Ireland, Barclays Bank, HSBC Group (also First Direct, M&S), Lloyds Banking Group (also Bank of Scotland, Halifax), Nationwide Building Society, NatWest Group (also NatWest, Royal Bank of Scotland, Ulster Bank), Northern Bank Limited and and Santander UK. Online banking adoption rate in UK is growing year on year, reaching 76% of UK population in 2020 (Statista).
 

Open banking

Open Banking is live in UK with more than 2.5 million users. The UK Competition and Markets Authority (CMA) released a decision in August 2016 requiring the nine largest UK banks – HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske Bank, Lloyds, and Nationwide – to provide authorised startups direct access to their data down to account transactions. 

Open Banking aims to increase competition and growth in the financial services industry. It opens the door to innovative goods and services that may benefit consumers and small and medium-sized companies. It can also help consumers gain a better understanding of their finances and discover new ways to make the most of their money.

The directive took effect on January 13, 2018, and it is based on principles and systems developed by Open Banking Limited, a non-profit organization established specifically for the purpose. The Competition and Markets Authority, on the other hand, is in charge of enforcing the law. The Financial Conduct Authority (FCA) or the Information Commissioner's Office was responsible for customer protection (under the PSD2 directive for account information and payment initiation services) 

The CMA directive only affects the nine major banks, and it operates in tandem with the wider PSD2 regulations that affect all payment account providers.

There are 202 FCA-regulated providers enrolled in Open Banking as of January 2020. They offer wealth management applications, as well as consumer lending companies that use Open Banking to gain access to account information for affordability tests and verification.

Integration with APIs

To use access and use the open banking APIs in UK, you will need to acquire an account information service provider license, issued by the Financial Conduct Authority. In addition to that, you will require a relevant certificate (QTSPs or eIDAS), compliant with Open Banking Initiate requirements.

Alternatively, you can use Nordigen's free Account Information solution - one API that connects to all major banks in UK. 

 

What is open banking, UK?

Open banking is a banking practice that securely shares financial information, such as consumer banking transactions and other financial data, to third-party financial service providers (Estevez, 2020). Sharing data is done through the use of application programming interfaces (APIs) and only with the consent of customers (The Balance, 2020). Open banking is the driver behind both innovation and competition in the financial industry (Cahill, n.d.). As a result, many industries have adapted to become more digital and take advantage of open banking technology.  

What is open banking, UK? Open banking UK is discussed below.

Open banking in the UK

Open banking in the UK is thriving. With more investment poured into it than any other industry, fintech is the UKs strongest startup sector (Davis, 2021). According to Crunchbase, the UK hosts 1,559 fintech companies (Crunchbase, n.d.). Of these, a total of 1,373 fintech companies are based in London and they have collectively raised £14.9b in equity funding (Davis, 2021). Most of them (79%) are in the seed and venture stages of evolution, meaning there is much room for growth (Davis, 2021).

Regulators and the UK Government are both supportive of fintechs. They have a UK open banking initiative (open banking initiative UK) that actively promotes innovation in order to drive better customer outcomes while ensuring data safety (Waterman, 2021). Initiatives like the regulatory sandbox allows ideas to be tested and developed in a safe and controlled environment (Waterman, 2021). As a result, the perfect environment has been formed for UK open banking to grow and thrive. The UK ensures clear technical standards are set, making app development easy and without guesswork (Waterman, 2021).

Open banking startups UK can be categorised into 12 categories: Account aggregator, Banking APIs, Business information, Credit analysis, Credit rating, Credit scoring, Currency Card, Lending, Loyalty, Monitoring, Payments, Saving & Investing and Tax. Account aggregators makeup close to one-fourth, or 22%, of open banking United Kingdom startups (Rastorguev, 2019).

 

UK open banking regulation

In Europe, open banking is regulated by the PSD2. PSD2 open banking operates under the payment services directive EU regulations. Open banking is a concept which enables secure sharing of financial information, such as consumer banking transactions and other financial data, to third-party service providers.

As PSD2 is a EU driven initiative, there are questions around whether or not the UK will need to comply post-brexit. PSD2 relates to the EEA not just the EU meaning most banks are planning for some form of an EEA relationship with the UK. Also, PSD2 is essential to interact and thrive in EU markets and there is a demand from banking experts to keep up with global PSD2 banking innovation (Exception, n.d.).

The UK open banking regulation is done through the Payment Services Regulations 2017, which brings the second EU Payment Services Directive (PSD2) into law. Open banking regulation UK is done by the FCA, or Financial Conduct Authority. Even after Brexit, the PSD2 will be needed for the UK financial services industry in order to remain competitive in Europe and across the world. The UK will need to ensure it complies with EU regulations if it wants to keep its position as a leader in open banking (Marcantonio, 2020). This means the UK is likely to align with EU regulation where it meets the needs of its own internal market, and also is likely to use regulation as a blueprint for its own but adjusted to meet its separate needs (Marcantonio, 2020).

 

UK open banking standard

UK open banking standard is designed to help any EU account provider with PSD2 and RTS requirements as well as supporting their app for an exemption from the contingency mechanism (Open Banking, n.d.). The Standard is open to all account providers (ASPSPs) and has been implemented across 90% of the UK payments account market (Open Banking, n.d.). It is designed to enable a well-functioning, successful ecosystem, where there are no barriers to the provision of products and services by TPPs (Open Banking, n.d.). The Standard covers all online payment accounts and includes the following core components: API Specifications, Security Profiles, Customer Experience Guidelines, Operational Guidelines, and Reference Library.

Ever since the EU’s PSD2 and the UK's Open Banking Standard was introduced at the start of 2018, Open Banking initiatives, led by regulatory and technological developments, continue to advance.

 

Open banking API UK

Open banking API UK is an application program interface that is used as a secure method of communication between third-party service providers and online banking systems (Finextra, 2019). These communications typically are done by FinTechs that create the API and banks that use them. Using an open banking login, APIs allow for a safe and secure way of giving access to financial information like balances, accounting information, cashflow, and transactions to fintechs. Banks, on the other hand, can use the same APIs to combine the digital services offered by other companies with their own platforms (Finextra, 2019).

UK open banking API specifications consist of 5 distinct types of specifications. These include Read/Write API Specifications, Open Data API Specifications, Directory Specifications, Dynamic Client Registration Specifications and finally MI Reporting Specifications (Open Banking, n.d.). 

 

Open banking loans UK

There are many UK finance open banking companies and UK open banking apps that deal with open banking loans UK. These companies can be categorised into business lending, consumer lending, mortgage lending, and Buy Now, Pay Later (BNPL).

Business lenders require data to make decisions on which businesses are eligible for loans. Open banking means lending companies can build a process that increases conversion rates and approval rates for creditworthy customers. Open banking allows automated bank statement collection. Open banking provides data regarding the debit and cash flow profile of a business and enables business lenders to understand the financial health of a business.

Consumer lending is becoming increasingly digital. Open banking allows companies to build a process that increases conversion rates and approval rates for creditworthy customers. Open banking helps companies automatically acquire and analyse open banking data, meaning the number of clients that have a limited or no credit history can be instantly eliminated. Furthermore, open banking helps increase the speed of loan application screening and approval. Finally, open banking reduces admin costs by reducing the number of manually entered data points and allows population risk-critical information.

In the mortgage lending industry it is important to understand customer needs, offer appropriate loans, as well as make the loan process as seamless as possible. Open banking allows mortgage lenders to reduce the number of steps required to apply for a mortgage. Furthermore, open banking reduces admin costs for each individual loan application by reducing the number of data points needed to be manually evaluated and allowing the inclusion of population risk-critical information from loan applicant bank accounts. Finally, for loan brokers open banking automates matches between lenders and loan applicants by enabling access to more information to make better lending decisions.

BNPL is all about ensuring high purchase conversion rates, while also reducing the number of steps that customers need to take to get what they want. Open banking helps keep high conversion rates while gaining information about loan applicants - enabling lending decisions to be both fast and accurate. Additionally, open banking allows for quick credit checks to be performed by avoiding the need to connect to traditional credit bureaus.

 

UK open banking

Open Banking is going global with around 90% of countries having open APIs. According to LearnBonds, there are over 10,000 financial institutions around the world with open banking implementations. Open banking is a global trend that is improving current connections across digital services. Open banking is also the next-generation business model in an open data economy.

The jurisdictions that are the global leaders in open banking include the UK, EU, and Australia. The UK is leading the way in open banking innovations and implementations. The UK open banking timeline started in 1967 following the installation of an ATM in the UK. Over 50 years later, Open Banking arrived, bringing with it a new era of digital banking (Kumire, 2019). In January 2016, PSD2 entered force and two years later it went live. Since then, open banking has made a lot of progress and made things that were impossible possible. The use of open APIs to expose various data from a bank to TPPs has become one of Open Banking’s great achievements (Kumire, 2019).  

 

References

The Balance. (2020, October 11). What Open Banking Is and How It Will Affect You. https://www.thebalance.com/what-is-open-banking-and-how-will-it-affect-you-4173727

Cahill, H. (n.d.). InvoiceFair. The Evolution of Open Banking: Connectivity breeds digital competition. https://invoicefair.com/the-evolution-of-open-banking-connectivity-breeds-digital-competition-081118/

Camerieri, J. (2020, October 6). The surprising future of mortgage technology. Housing Wire. https://www.housingwire.com/articles/the-surprising-future-of-mortgage-technology/

Crunchbase. (n.d.). United Kingdom FinTech Companies. Crunchbase. https://www.crunchbase.com/hub/united-kingdom-fintech-companies

Davis, J. (2021, January 14). Top 50 Fintech Startups and Scaleups in the UK 2021. Beauhurst. https://www.beauhurst.com/blog/fintech-startup-companies/

Estevez, E. (2020, August 27). Open Banking. Investopedia. https://www.investopedia.com/terms/o/open-banking.asp

Finextra. (2019, July 15). The Basics of Open Banking. Finextra. https://www.finextra.com/blogposting/17505/the-basics-of-open-banking

Infosys BPM. (n.d.). How Is Technology Set to Transform Consumer Lending? Infosys BPM. https://www.infosysbpm.com/blogs/business-transformation/how-is-technology-set-to-transform-consumer-lending.html

Kumire, J. (2019, August 27). Open Banking in the UK: what's happened so far. 11FS. https://11fs.com/reports/open-banking-in-the-uk-whats-happened-so-far

Marcantonio, P. (2020, December 7). Brexit: What Is The Outlook For Open Banking? Finance Monthly. https://www.finance-monthly.com/2020/12/brexit-what-is-the-outlook-for-open-banking/

Meneses, N., Neves, R., Niza, G., Quinn, T., & Zonno, Y. (2020, August 5). How European banks can digitize the mortgage experience to help customers during and beyond COVID-19. McKinsey & Company.

Open Banking. (n.d.). API Specifications. Open Banking. https://standards.openbanking.org.uk/api-specifications/

Open Banking. (n.d.). Welcome to the Open Banking Standard. Open Banking. https://standards.openbanking.org.uk/

Rastorguev, D. (2019, August 10). Open Banking FinTech Startups in the UK - Summer 2019. LinkedIn. https://www.linkedin.com/pulse/open-banking-fintech-startups-uk-summer-2019-dmitry-rastorguev/

Saines, K. (2020, November 10). From evolution to revolution: How tech can help the mortgage industry thrive post-pandemic. Mortgage Finance Gazette. https://www.mortgagefinancegazette.com/market-commentary/evolution-revolution-tech-can-help-mortgage-industry-thrive-post-pandemic-10-11-2020/

Waterman, T. (2021, July 1). What Australia can learn from the UK’s Open Banking experiment. AltFi. https://www.altfi.com/article/8064_what-australia-can-learn-from-the-uks-open-banking-experiment

 

 


Banks

Here is a list of major banks providing Open Banking in The United Kingdom

Providers

Here is a list of major open banking platforms in The United Kingdom

Tink

Tink was founded in 2012, and has built one of Europe’s biggest screen-scraping / open banking platforms – they claim to have broad connectivity and services that create value out of the financial data. Tink offers their platform to banks, fintechs, and startups.


Nordigen

Nordigen is an authorised Account Information Service Provider. We provide free access to bank data and premium data insights, using regulated PSD2 connections.


Yapily

Yapily, one of a number of fintech startups that offer an opening banking API to let enterprises, such as financial service providers and merchants, connect to banks. Founded in mid 2017 by Stefano Vaccino, Yapily’s open banking platform makes it easier for various service providers to connect to banks. Specifically, it provides a way to retrieve financial data and initiate payments via a “single secure API” that in turn connects to each supported bank’s open API.


Plaid

Plaid is a financial services company based in San Francisco, California. The company builds a data transfer network that powers fintech and digital finance products. Plaid's product, a technology platform, enables applications to connect with users’ bank accounts.


Truelayer

TrueLayer is a London-based start-up that helps fintech companies verify accounts and connect their apps to bank data. TrueLayer was founded by Francesco Simoneschi and the company has offices in 5 cities across the world.


Account Score

AccountScore, an Equifax company, is an analytics business based in London but with people in the USA and in India, which provides actionable insights and analytics on bank transaction data for our clients - typically banks and financial services companies who want to learn more about their customers, prospects and applicants.


Credit Kudos

Credit Kudos is a challenger Credit Reference Agency and authorised Open Banking provider that uses financial behaviour to measure creditworthiness.