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United Kingdom

Open Banking

The United Kingdom sits on the edge of Europe, and is a leader in Open Banking.

As of 2022, the internet user penetration rate in the United Kingdom (UK) was nearly 93 percent. This share is projected to grow to 94 percent by 2027.

The UK population’s use of the internet had increased in recent years, going from around 89 percent in 2018 to over 92 percent in 2021. ¬†

The United Kingdom uses the¬†UK Open Banking Standard.¬†In 2016, the Competition and Markets Authority (CMA) in the UK published¬†a‚ÄĮreport on the UK‚Äôs retail banking market.‚ÄĮThe report found that older, larger banks aren’t incentivised to compete to gain customers‚Äô business, while newer banks find it difficult to access the market and grow. One of the CMA‚Äôs recommendations to tackle this problem was Open Banking.¬†In August 2016, the¬†CMA issued a ruling that required the nine biggest UK banks ‚ÄstHSBC,¬†Barclays,¬†RBS,¬†Santander,¬†Bank of Ireland,¬†Allied Irish Bank,¬†Danske Bank,¬†Lloyds¬†and¬†Nationwide¬†‚Äď to allow licensed startups direct access to their data down to the level of¬†transaction-account¬†transactions (now all institutions that offer payment accounts must participate).

In January 2023, the CMA announced that the standards had been fully implemented by the six largest banks in the UK.

In their European Open Banking league, Yapily ranked the United Kingdom 1st out of 18 countries. The UK comes out on top as the leading adopter of Open Banking, with its clear functionality and more widespread mandating of other features, such as Bulk Payments and VRP (variable recurring payments). Yapily states that Open Banking has been implemented successfully in the UK and continues that the focus should now be on fixing some of the remaining issues in the technical implementation, such as the user experience and API quality.

The UK also tops¬†Yapily’s Open Banking League¬†table due to high digital readiness among the public, a pro-innovation regulatory environment, and the most TPPs (Third-Party-Providers) across Europe.¬†

Yapily states that the industry would benefit from a roadmap to further the implementation of Open Finance and focus on building an Open Finance framework for the future. The Financial Conduct Authority (FCA) is currently drafting principles of Open Finance, which set out that regulation would probably be needed to ensure that consumers are protected, data is used ethically, and that liability was clear if things went wrong. 

On the 19th of December 2022, OBIE published its plans for a transition into a new entity, overseen by a new Joint Regulatory Oversight Committee. The committee stated a priority to increase competition and innovation through a greater choice of payment methods, building a scalable model for future data sharing and establishing a sustainable footing for the ongoing Open Banking ecosystem.

In response, a group of Fintechs, including Monzo, Wise and MoneyHub published, an open letter asking for clarity about future governance and enforcement.

According to The Global Findex Database, 100% of British adults had bank accounts in 2021.

In their¬†June 2022 impact report, The Open Banking Implementation Entity (OBIE) estimated that 10 ‚Äď 11% of digitally-enabled consumers and small businesses used Open Banking in the UK as of March 2022, which is a 6-7% increase from the previous year. Business penetration (11%) is slightly higher than retail (10%), but the gap between the two has closed significantly since 2021.¬†The types of usage were split between 64% data, 30% payments and 6% of customers using both; however, business users were more strongly skewed to data. There were 21.1m Open Banking payments between September 2021 and March 2022, compared to 6.1m in the same period the prior year ‚Äď meaning that the month-on-month growth was running at around 10%.

In a recent study researching the Open Banking adoption among consumers, British consumers scored higher than average Europeans in nearly all areas measured. 36% of British consumers were interested in receiving intelligent assistance to manage payments, 34% were interested in having their data used to develop convenient new payment methods, 32% having their data used in aggregating financial information and storing it in one place and 29% in having their data used to offer a better range or better quality of services.

The UK has¬†one of the highest¬†Fintech adoption rates in the world at 71%.¬†Ernst & Young Global Limited (EY) asked consumers about their use of 19 Fintech services across five categories.¬†Fintech adopter¬†was defined as someone who has used two or more ‚Äúbuckets‚ÄĚ of services since this indicates a habitual change in behaviour in a way that the use of a single service does not. A bucket consists of a major Fintech service or two or more related services, such as online stockbroking and online investment advice.

In addition, Open Banking is well adopted in the UK, where over 6 million people now use Open Banking-enabled products and services. TPPs develop apps that allow the consumer to keep track of their finances, and savings, stick to their budget, and so on. 76% of consumers using Personal Finance Management (PFM) apps acknowledged that these services have helped them save more and build a financial cushion. 75% said that PFMs helped them to keep on top of expenditures, 62% reduce unnecessary expenditures, 64% keep to a budget, 59% shop around more and 55% reduce fees and costs.

Savings app users clearly believe the apps are helping them to save. For more than one in five, this was their first savings account, and overall, nearly two-thirds had seen their savings go up since they started to use their app. Three-quarters agreed that they now found it easier to regularly save money left over each month, with 71% now feeling more confident that they have a financial cushion or buffer to meet unexpected spending.

The Open Banking Implementation Entity (OBIE)¬†¬†continues to drive maturity¬†across the UK‚Äôs Open Banking ecosystem, but its future role remains uncertain as the FCA is¬†planning¬†to launch¬†a ‘Future Entity’ to replace the OBIE in its current form, which would serve the needs of the significantly larger number of financial institutions by enabling an Open Data and payments market.¬†Whilst the OBIE has been instrumental in ensuring the success of Open Banking in the UK, the UK Competition and Markets Authority (CMA) order is coming to an end later in 2022, potentially slowing momentum and leaving a gap which the OBIE used to fill. To foster further innovation and adoption, the CMA must mandate VRPs beyond sweeping for UK banks. If the CMA9 and other banks can start to implement premium APIs beyond the minimum regulatory requirements,¬†Yapily¬†predicts seeing the UK‚Äôs Open Banking ecosystem continue to accelerate.

According to¬†Deloitte’s research¬†there are more than¬†2,500 Fintechs in the UK.¬†The Open Banking ecosystem in the UK is thriving with 325 regulated providers made up of 234 third-party providers and 91 account providers. As of March 2022, there were¬†128 fully regulated firms¬†with live-to-market Open Banking-enabled products and services. This is more than the rest of¬†Europe combined. The fully regulated market remains dominated by propositions addressing improved financial decision-making (40), expanded payments choice (31) and better borrowing (23). At the end of March 2022, 142 agents of regulated Third-Party Providers (TPPs) offered live-to-market products and services in the UK. Most agent propositions are clustered around improved financial decision-making (56), expanded payments choice (26) and better borrowing (25). However, this market sector is highly innovative, with unique propositions to meet specific market needs.

Yapily’s¬†analysis found that the UK processed the largest number of API calls and payment volumes over the last 12 months compared to its European neighbours, with payment conversion rates also increasing between 2021 to 2022. UK banks are some of the most advanced in Europe when it comes to enabling APIs for TPPs to utilise. They are also keen to improve and evolve their capabilities as well as resolve reported issues when they arise. UK banks also offer wide coverage and a consistently high API standard. The UK‚Äôs Faster Payments System, designed to speed up the process of sending and receiving money via bank-to-bank transfers, is enabling Open Banking payments to accelerate at speed.¬†

At the end of 2021,¬†over 26.6m Open Banking payments¬†have been made; this is an increase of more than 500% in 12 months. Earlier in 2021, HM Revenue & Customs (HMRC) became the first Government department in the world to allow users to make Open Banking payments. To date, more than ¬£2.4bn has been made using this method, which significantly reduces the risk of fraud, and customer error when making the payment as well as the cost of the transaction too ‚Äď saving taxpayers money.

The Financial Services Skills Commission (FSSC) reported that 92% of their member firms had hard-to-fill vacancies in 2021. Almost a quarter of firms cite technological change as a key driver, and a similar proportion cites changing customer behaviour. Changes to products and services and to business models and strategies are also widely mentioned. Skills are the key to adapting to this rapid change, leveraging technology for competitive advantage and sustainable growth. 42% of firms globally that have not pursued technological transformation say it is because of difficulties sourcing talent.

Another report by¬†Consultancy Core-Asset¬†stated that¬†there will continue to be significant candidate skills shortages. The report highlights demand within Fintech for business analysts and developers, particularly those with cloud technologies and technical and solutions architects and engineers. The skill set ‚Äėhot spots‚Äô include fund accounting, performance, client services, implementation/transitions, third-party oversight, corporate actions, trade support, settlements, derivatives and client governance.

The UK FCA created a regulatory sandbox in 2016. The Regulatory Sandbox allows firms to test innovative propositions in the market with real consumers. It is open for applications at any point throughout the year. 

The United Kingdom uses the UK Open Banking Standard.