Open banking APIs in the UK

Generally, open banking is known as a banking practice that allows the interchange of data across banks and third-party financial service providers to their consumers’ benefit. By encouraging data sharing between financial institutions, open banking aims to transform the banking industry entirely.

Practically, this new banking practice forces account-holding financial institutions to create open access into their customer accounts to other financial service providers. Third parties can connect and retrieve previously-locked consumers‘ financial data thanks to open banking APIs, also known as Application Programming Interfaces.

APIs are software that allows to form a connection between two different applications and simplify the retrieval, exchange, and presentation of financial information.

Why do open banking APIs matter?

As open banking requires banks to deliver access to their customers’ data, banks become API providers. This new definition for banks means that banks build their open interfaces. These interfaces are available to any third-party services providers outside of a bank who wants to use them to retrieve consumers’ data.

Under open banking, third parties are API consumers that use data provided by banks to deliver advanced financial services to consumers only with their consent for this to happen. Third-party providers, usually fintech companies, through open banking APIs, access consumers’ information and use it to design new tools and applications while using underlying banking features and suggest banking services already provided by the bank to their clients.

Also, banks can offer more advanced service options to their customers through third-party providers. To sum up, open banking APIs unlock the way to new products and services that could help both financial institutions and customers make better deals and get more from their financial data.

How the usage of open banking API benefits consumers?

As APIs enable banks to open up their data channels, third parties, known as Account Information Service Providers, or AISPs, can provide consumers with a consolidating view of their financial information from different bank accounts in one dashboard. Also, these third parties can use retrieved users‘ data for budgeting advice, loan or credit approval, and various other financial or investment services.

In addition, with the usage of APIs, third parties, known as Payment Initiation Service Providers, or PISPs, can help consumers initiate payments through open banking conveniently and time consumedly, without needing to log into their bank account or use a credit or debit card.

Does open banking apply to the UK?

Even though all countries of the European Union and European Economic Area are expected to be one single market regarding implementation of open banking, however, some countries are ahead of the development of this new banking practice, while others lag behind. The UK is one of the most prominent innovators regarding the implementation of open banking in Europe due to its API specifications.

Why do open banking AIPs in the UK differ from open banking APIs in the EU?

When European financial institutions were forced to open their data to other financial service providers in 2018, nine major banks in the UK already had their APIs, which allowed them to adopt open banking from the very start. Thanks to the advantage achieved at the beginning of the open banking era, the UK built the most prominent open banking infrastructure in Europe as it leads in the number of AIPs and PISPs.

Also, the UK provides their highly technically detailed common set of API standards for reuse in the public sector, which, in turn, brings down obtainment and development costs. In addition to that, the UK regulates the implementation of APIs with a more flexible approach enabling innovations to thrive. It is safe to say that the growth of open banking in the UK exceeded triumph and most likely continues to do so.