We’ve Only Just Begun

The make up and mix of open banking players in the UK

The make up and mix of open banking players in the UK

In this week’s deep dive newsletter we consider whether Open Banking has only just begun and explore the make up and mix of open banking players in the UK with a guest blog from Jeremy Light’s Agenda:Payments newsletter - huge thanks to Jeremy for allowing Payments:Unpacked to feature “We’ve Only Just Begun” as a guest blog.

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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!

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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.

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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

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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.

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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.