We’ve Only Just Begun
The make up and mix of open banking players in the UK
In January 2018 I had my first and only live TV interview, on the BBC breakfast business show. The occasion was the launch of open banking in the UK, the day when the second Payment Services Directive started to come into effect. I have little recollection of the points I made, other than saying it heralded a new dawn in payments and in how we pay – I recall the presenting team looked unconvinced and moved on quickly to the next item!
Seven years on, how is it going?
Readers will know that I write frequently about open banking, most recently1 when I highlighted how the UK market is ripe for a shakeout, with too many players chasing too few transactions (for now).
When researching that article, I became immersed in the directory of regulated providers published by Open Banking Ltd (OBL)2, to get a feel for the landscape, its players, their number and mix, their business models and the uses they support.
This article covers my findings.
Landscape Structure
Overall, there are 232 regulated open banking providers in the UK who are registered with the FCA (and OBL3), excluding EEA registered providers4 and those that seem to be dormant.
Figure 1 shows the structure of the landscape, its mix and number of providers, in three views – a business model view showing the type of players, a service provision/usage view showing the services provided or used and a licence view.
Figure 1 – number of open banking providers in the UK and the market structure
Licences
All open banking providers are licensed by the FCA. The simplest licences are:
PISP - payment initiation service provider, allowing initiation of payments on payment accounts provided by account servicing payments service providers (ASPSPs - typically banks)
AISP - account information service provider, allowing access to payment account information.
A more comprehensive licence is an authorised payment institution, which covers PISP and AISP activities and additionally payment services such as money remittance, card processing and direct debits.
Figure 1 shows that whereas AISP-only licences are popular, with 74 providers, there are no providers with standalone PISP licences. This is because an AISP business can be built on just account information services, whereas a business with only a PISP licence will be restricted in what it can do. It may as well get permissions for PISP and AISP services and for payments processing in a single licence application to increase the flexibility of its business model. 61 providers are authorised payment institutions.
A still more comprehensive licence is an electronic money issuer (EMI) licence. This covers the same permissions as an authorised payment institution and additionally allows the issuing of e-money in payment accounts (e.g. a PayPal account).
A banking licence is at the top of the hierarchy, giving banks the same permissions as an EMI, but without the safeguarding requirements, plus the licence to provide credit.
At the bottom of the hierarchy are PSD2 agents who act under the authorisation of a principal firm. Few open banking providers have this licence with just two in the directory. There are also licences for small EMIs and small authorised payment institutions which restrict the volume of business permitted, but there are no open banking providers with these in the UK.
Business Models and Services
All banks that provide online payment accounts are required to make them accessible through AIS and PIS APIs. These are ASPSPs. Additionally, EMIs may also be ASPSPs if their accounts qualify. Currently, there are 73 bank ASPSPs and four EMI ASPSPs: Alpha FX, Monese, Wise and Tide.
Given this, you would expect to see 77 providers listed in the drop-down boxes when making an open banking payment. However, using HMRC as an example, there are only 63 banks listed in its drop-down and even then, some banks have multiple entries for their different bank account types/brands (NatWest has 11). In total, there are just 28 ASPSs on the HMRC website to pay tax – I am unsure where the other 49 ASPSPs are, perhaps aggregators have yet to connect to their APIs given these ASPSPs tend to be specialists or represent UK branches of international banks, with a very small UK customer base.
The providers who access payment accounts for AIS and PIS services are known as third party providers, TPPs. There are two types of TPP:
users who use the services for their own purposes e.g. accounting software fed by bank account entries
aggregators who aggregate APIs from multiple ASPSPs as a service to users (thereby insulating users from the effort and cost of implementing and maintaining multiple bank connections – see footnote 5).
Whereas users use open banking to enhance their products and build new ones, aggregators make a business out of open banking, in particular Pay-by-Bank services. Aggregators have their own customers or users, probably running into hundreds or more, but I have no information on these numbers to include in Figure 1. The users shown are those that access banks directly using open banking APIs without using the services of an aggregator.
There are also technical service providers, TSPs who provide technology to the open banking industry. There seems to be no directory for these.
In my previous article, I highlighted that there is likely to be a shakeout of the aggregators, there are too many. I estimated then that there are about 20, but my analysis here shows there are in fact 53 in total. The shakeout could be significant.
Uses
The products and services that TPPs provide using open banking are fairly obvious. For AIS, the most common are:
- Accounting and tax
- Compliance checks and identity
- Credit scoring
- Data intelligence
- Expense management
- Personal financial management
- Treasury dashboards and cashflow forecasting
There are also some providing CRM analytics and cashbacks using AIS data, which looks to be an emerging area for open banking.
For PIS:
- eCommerce
- Funding accounts (investment, FX/remittance, crypto exchanges, savings etc)
- Paying off credit card balances
- Payments
- Payroll and accounts payable
Noticeable by their absence in the list of providers are big retailers, including telcos, supermarkets and fuel retailers. None have even registered with OBL as FCA-authorised payment institutions (aside from Sainsbury and M&S who are covered by their banking licences) which seems to indicate they have no interest in upgrading their card-based payment apps to use open banking.
This is a shame as many have customer bases running into millions and have apps which support point-of-sale payments (e.g. BP, Tesco). Although the open banking user experience is unusable for POS payments now and OK (ish) for online, with commercial variable recurring payments on the horizon, with them open banking payments at POS may be viable soon.
It is possible that large retailers are planning to use API aggregators (e.g. Ryanair uses Truelayer5), instead of the hassle of managing their own bank connections, or it may be that even with variable payments, they believe the user experience in their app falls short.
Conclusion
With 232 open banking providers, the landscape in the UK is vibrant, but there are challenges, commercially (as noted in my prior article) and technically6.
Where open banking in the UK goes from here is difficult to predict, but in many ways, with the groundwork laid over the past seven years now in place, its impact on UK payments is only just beginning.
Open banking is also at the heart of the UK’s National Payment Vision. Although I have my reservations about this7, it means open banking is getting a lot attention in the UK and much will happen this year.
I am unlikely to get another slot on the BBC, but I will give an update here in 12 months. It will be interesting to see then how the landscape in Figure 1 and the mix and number of providers will change.
Shake it Up: https://jeremylight.substack.com/p/shake-it-up
Open Banking Ltd directory: https://www.openbanking.org.uk/regulated-providers/
The OBL directory categorises regulated providers as ASPSPs and TPPs, with links to their websites and registration in the FCA register. There is little information on their business models and no information on the open banking services they use. I have had to make my own assumptions, therefore treat the figures presented here with some caution.
the FCA register is the source of truth. The OBL register is compulsory only for the nine banks mandated by the CMA to provide PSD2 APIs to a common standard, but in practice to get hold of API specifications and other information, all regulated open banking providers are likely to be in the OBL directory.
Since the Temporary Permissions Regime (TPR) ended in Dec 2023, to operate in the UK, EEA registered businesses have needed to reapply for a UK registration from the FCA. The reasons why there are still around 63 EEA registered businesses on the directory are likely to be :
- if operating under the Financial Services Contracts Regime (FSCR) – winding down UK operations in contractual run-off but unable to take on new business.
- Awaiting FCA authorisation – applied but not yet approved
- Listed under the Temporary Marketing Permissions Regime (TMPR) – applies to certain investment funds until Dec 31, 2025.
Although OBL has done a great job standardising APIs, there are quirks, even among the nine banks mandated by the CMA to conform to a common standard – some data definitions such as payee name vary and as the standards are enhanced over time, different banks can be on different versions creating a headache for TPPs. The other ASPSPs typically conform to the OBL standards, but their APIs can have differences, again creating issues for TPPs. As the ecosystem grows, these quirks will amplify.
In fact, I believe it is a serious mistake to focus solely on open banking. Open banking has its uses and is here to stay, particularly Pay-by-Bank from a payments perspective, but there is far greater opportunity and need for payment wallets like those used extensively in India, China, Europe and elsewhere. Sadly, in its current form with its reliance on mobile and online banking and its clunky user experience, open banking payments are unlikely ever to be used as a universal, multi-bank, multi-use payment mechanism or reach the levels of success that other countries have achieved with wallets.