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The UK has Europe’s strongest open banking infrastructure

The UK has issued the most open-banking licences in Europe, a new study finds, although it lags behind the Nordics in digital commerce.

By Victor Vladev

The UK is a leader in open banking infrastructure, according to a recent study of Europe’s digital payments ecosystems, reflecting its post-Brexit ambition to build a world-leading digital finance ecosystem. But when it comes to the overall digitisation of commerce – a crucial enabling factor for open banking – the UK lags behind the Nordics, the study found. 

Higher internet penetration put the Nordics ahead of the UK in the overall digitisation of commerce. (Photo by Pressmaster/Shutterstock)


Why the UK leads Europe in open banking infrastructure

Open banking, in which retail banks are required to make payment and account information services available through APIs, was mandated in Europe by the EU’s Revised Payment Services Directive (PSD2), which came into effect in 2019. But the UK had a head start, requiring its nine major retail banks to publish APIs in 2018. 

That head start is reflected in the maturity of the UK’s open banking infrastructure, according to the Open Banking Readiness Index, conducted by London-based market intelligence company and publisher Payments Cards & Mobile (PCM) and global financial services giant Mastercard. The index compared ten European countries on measures of open banking infrastructure and digital commerce. 

The UK boasts by far the greatest number of open banking licences issued to payment initiation service providers (PISPs), which let users withdraw money directly from their accounts, and account information service providers (AISPs), which allow them to see all their payment account information from different bank accounts in one place.

It also has a total of 173 operational account servicing payment service providers (ASPSPs) – financial institutions that utilise both PISPs and AISPs to offer payment accounts with online access – compared to just 36 for Germany, the runner-up in the ASPSP category. The number of licensed open banking APIs in the UK (166) is second only to Norway (194).

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The UK's open banking leadership reflects a post-Brexit strategy to build a world-leading ecosystem, the PCM/Mastercard report concluded. UK banks and regulators have launched ambitious plans to extend the UK's open banking model to an open finance framework that would go beyond payments and potentially include financial services such as savings accounts, mortgages, consumer credit, investments, pensions and insurance.

The UK lags behind the Nordics in digital commerce

However, when it came to the digitisation of commerce – another crucial component of open banking readiness – the UK was eclipsed by Sweden, Denmark and Norway, thanks to the Nordic countries' greater internet penetration and adoption. Both of these metrics were at least 95% in the Nordic countries, compared to 87% and 80% in the UK respectively.

On other measures of digital commerce, though, the UK outperformed the Nordics, leading the pack in the proportion of the population that had made a purchase online in the past 12 and three months.

Meanwhile, Sweden, Denmark and Norway have assumed a regional collaborative approach to create a common cross-border infrastructure. The report classifies their regulatory regimes regarding open banking and digital payment services as more evolved than those of other European countries. 

Elsewhere in Europe, Germany was slow to adopt open banking but has since embraced the model, the report found. With its well-developed online and mobile banking infrastructure, the country is poised for a rapid advance in the establishment of an open banking ecosystem. 

Around the Mediterranean, France, Italy and Spain have been using the development of open banking as a tool to support the digital transformation of their domestic payment ecosystems, the report concludes. All of them have large retail banking markets, though Italy is notably lagging in digital banking adoption. By contrast, Spain has used its proven payment infrastructure to advance the establishment of open banking. Another ace up its sleeve is its high level of 5G networks adoption (75%). France, in the meantime, is gaining momentum as it improves its smartphone penetration and invests in its 4G and 5G infrastructure.  

Though they are lagging behind in both open banking infrastructure and digital commerce readiness, Poland and Hungary have well-established online and mobile banking ecosystems and have taken advantage of the PSD2 to leapfrog their legacy banking infrastructures and progress to a full open banking environment, though they are still at an early stage of this journey. 

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