Current state of Open Banking in the UK

There is increased momentum in consumer adoption of Open Banking year on year: within the UK, the number of open banking users has surpassed 7 million for the first time, with 1.2 million of the 7 million active open banking users in the UK being first-time users. This comes five years after the introduction of the Second Payment Services Directive (PSD2), which made open banking a regulatory requirement in the UK.

Hopefully we will see the UK maintain this momentum and build on the progress that the ecosystem has made. From access to cost-effective credit, building a regular savings habit or making more informed financial decisions, Open Banking is already delivering the means for people to improve their financial well-being.

Interestingly, the UK’s fully regulated firms with live-to-market open banking-enabled products predominantly focus on the following use cases which account for 76% of all propositions offered:

• Improved financial decision-making
• Expanded payments choice
• Better borrowing

The driving force behind Open Finance

Open Finance, as we’ve written previously in our report “Uncovering the potential of Open Finance”, is the extension of Open Banking across all areas of financial services – pensions, lending, wealth management, etc – and the next step on the path towards a truly Open Data economy.

In the absence of a firm and coordinated regulatory push, the industry needs to be able to demonstrate the value of Open Finance to all key actors.

To customers, generally the incentive is clear – better management of my money, more fairly priced products, identification of opportunities to save costs and increase wealth (broadly).

To fintechs and third party providers within and outside of FS, again the concept of value makes sense – Open Finance will broaden the capabilities, products and services that these organisations can offer to their customers and clients.

But to those that control and manage customer data today, or own and coordinate payment schemes, the case for value often seems less clear, particularly given the huge costs involved in meeting the regulatory mandate in the first place.

This is where the role of aggregators becomes most crucial. The creation and commercialisation of added value data and payment services that go beyond the regulatory agenda provides these actors with a financial incentive to provision APIs that power these solutions.

Aggregators: The lifeblood of open banking and the enablers for Open Finance

Whilst it is important to focus on the benefits that Open Banking and Finance bring, it is useful to understand the vital part Open Banking aggregators play in enabling the ecosystem. Open Banking aggregators are crucial to the growing infrastructure of Open Banking and the wider realm of Open Finance and are often termed “The Connective Tissue for Open Banking”. They enable financial institutions to embed the power of Open Banking into their products and services and as a result create better and fairer financial services for everyone.

Aggregators play a crucial role in growing the infrastructure that supports Open Banking and the broader drive towards Open Finance. The role of an “aggregator” isn’t defined within the regulatory texts, but within our loose definition, an aggregator will always be a regulated entity. They will sit across three core roles: Account Information Service Provider (AISP), Payment Initiation Service Provider (PISP), Third Party Provider (TPP). That is not to say that all AISPs are aggregators, nor that all aggregators must fulfil each of these three roles.  

At their core, aggregators provide the infrastructure, data models and – importantly – commercial constructs that allow financial institutions, fintechs and non-FS third parties to create solutions for customers that leverage open banking data or payments.

How do Open banking Aggregators work?

Open Banking Aggregators work by connecting to the Application Programming Interfaces (APIs) of different financial institutions and consolidating the data in a standardised format that makes it easier for consumers to access and analyse their financial information.

Here’s a simplified overview of how Open Banking Aggregators work:

1. Consumer gives consent: The consumer gives their explicit consent to the Open Banking Aggregator to access their financial data from multiple accounts across different financial institutions.
2. Open Banking Aggregator connects to APIs: The Open Banking Aggregator connects to the APIs of different financial service providers and retrieves the consumer’s financial data.
3. Data is consolidated: The data from multiple accounts across different financial institutions is consolidated and transformed into a standardised format, making it easier for consumers to view and analyse their financial information.
4. Services are provided: The Open Banking Aggregator provides a range of services to the consumer, including account aggregation, payment initiation, and personal financial management tools.
5. Security and privacy are ensured: Open Banking Aggregators are required to comply with strict data security and privacy standards and follow the Open Banking API specifications. They must also provide customers with clear and concise information about how their data is being used and give them control over their data sharing preferences.

Overall, Open Banking Aggregators provide a platform that enables consumers to access and manage their financial data from multiple accounts across different financial institutions, making it easier for them to track their spending, analyse their financial habits, and make informed decisions about their finances. It enables third-party providers to run their services and deliver products for those who want to move, manage and leverage their money effectively in a faster and safer way.

Assessing aggregator capabilities

As the momentum of Open Banking continues to accelerate, the quantity of aggregators and the different capabilities/features on offer is expanding and diversifying. Choosing the aggregator for your usecase and organisation can be a complex and confusing task.

Meanwhile, new use cases that need to be solved by an aggregator have emerged with the digital shift across the industry. As these new use cases develop and customer needs change, it is unsurprising that FIs are questioning how and what aggregators can address issues and give them access to their extensive capabilities.

In our Open Banking Aggregator Series, we will be delving into the different usecases aggregators can unable, from payments, to enhanced affordability assessment, KYC, onboarding and many more, as well as uncovering the key considerations when selecting an aggregator for your organisation.