The State of Digital Banking in the UK

In recent years, the UK’s financial system has been in flux. We’re now seeing long-standing banks, smaller challengers, and fintechs all vying for attention in a competitive market.

Mainly founded over the last decade or so, challenger banks typically eschew physical branches in favor of a digital-first experience. As a result, users can access services like credit or debit cards, savings accounts, current accounts, and even mortgages through digital applications.

Although the rise of challenger banks has been exciting to watch, the banking space as a whole has historically been resistant to innovation and risk-averse in its approach. Despite their perceived agility and capability to disrupt, challenger banks and fintechs are ultimately subject to the same compliance measures as bigger players — all banks in the UK are regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).

Recent changes worldwide, like open banking and the introduction of Section 1033 in the US, aim to encourage more flexibility and enable banks to compete with fintechs. (It’s worth noting that although no single regulatory framework controls their actions, fintech products in the UK are also regulated by the FCA.) So, are they working?

Below, we’ll explore how banks, both challengers and incumbents, and fintechs are increasingly relying on APIs in 2025. We’ll also confront the idea that the changing face of digital banking is making it more difficult for challenger banks to… challenge.

The Impact of Open Banking

In 2018, the introduction of open banking saw the Competitions and Markets Authority (CMA) require the UK’s nine largest banks and building societies to make customer data available to regulated companies (smaller challenger banks, fintechs, etc.) via APIs.

The move was designed to reduce the impact of monopolies and promote healthy market competition. The Open Banking Implementation Entity (OBIE) published, and still maintains today, the Open Banking Standard, which outlines what the open banking ecosystem looks like.

The CMA 9, as they would come to be known, consists of AIB Group, Bank of Ireland, Barclays Bank, HSBC, Lloyds, Nationwide, Northern Bank Limited (trading as Danske Bank), NatWest, and Santander. Banking, including open banking, continues to be regulated by the FCA.

According to OBIE, now known as Open Banking Limited (OBL), over 12 million active businesses and consumers benefit from open banking APIs, which they estimate has added £4bn to the UK economy. “The UK continues to be a pioneer in open banking, and its Open Banking Standard and mandated approach delivered a blueprint for more than 60 other jurisdictions,” OBL told Nordic APIs. “The use of open banking data in credit assessments has expanded access to affordable lending, as well as speeding up mortgage applications, and assessments for affordable energy and telecoms tariffs.”

While some of the CMA 9 are doing the bare minimum to meet regulatory requirements, others have taken the extra step to commercialize APIs, says Mark Boyd, Director at Platformable. “These banks tend to have modern-looking developer portals and have used their API knowledge to update the look and feel of their digital experiences.”

It’s a far cry from the opinion of Tom Blomfield, founder of challenger bank Monzo. In early 2020, Blomfield stated that “the positive effect of Open Banking on innovation has been nil” and even went as far as to say, “It is imposing massive costs on challengers like ourselves to implement standards nobody uses.”

Blomfield’s criticism isn’t without merit — open banking consultant Chris Wood acknowledges that “APIs are not the first priority of traditional banks” and that they “have not, in general, had a significant impact on the openness of banks in the UK.”

However, that’s not the full picture. Because things have changed, and are changing, in the traditional banking sector due to open banking. HSBC, for example, was the first major UK bank to satisfy API publishing requirements and launched an extensive developer portal back in 2016.

If there’s a note of bitterness here, it may be down to the erosion of the competitive edge challengers once had. But just how significant have these changes been?

The Changing Face of Banking

The goal for challenger banks, Wood suggests, is to “acquire that same level of collateral as traditional banks, and sustain it through differentiated business models.” He cites strategies like exceptional customer experience, headless banking, and concepts like banking-as-a-service as stepping stones towards competing on a level playing field.

The problem with this approach for challengers is that, while they strive to look more like big banks, big banks are also looking more like challengers. “This year, banks will need to provide confirmation of payee APIs, which will extend instant payments offerings,” says Platformable’s Boyd. “Incumbent banks are already thinking about and testing new payment business models, so they are starting to prepare for value-added services they could offer to merchants and others alongside the required confirmation of payee APIs.”

We covered some top uses of fintech APIs a few years ago and, these days, big players in the industry are just as likely to be using these products (and similar offerings) as smaller challenger banks. Boyd attributes this, at least in part, to the introduction of open banking.

“We’ve seen these banks take what they were learning with open APIs and leverage the new infrastructure they were building to update their digital banking channels,” says Boyd. “Suddenly, a lot of banks didn’t look as far behind fintech in their interfaces.” Having updated these apps and interfaces, banks are applying their API know-how to test new business models, he says.

The rise of open banking, it could be argued, gave larger banks a route to modernization.

From Incumbents to Challenger to Fintech

The extent to which banks, both incumbent and challenger, engage with APIs varies hugely. We’ve written previously about how UK challenger banks are using APIs, and it’s worth pointing out their use can often feel tangential to their core business offering(s). There are, though, a few notable exceptions to that idea.

Boyd highlights Starling Bank as one such exception, explaining that their marketplace route for APIs is (at least partially) responsible for their moving “from an annual negative balance for their business arm to positive by charging fintech providers to be listed in their marketplace.”

“For Starling,” he continues, “businesses that have at least one integration via the marketplace are less likely to change banks, so lifetime customer value increases with marketplace use. They now seem to be experimenting with a similar marketplace offering for retail customers.”

Elsewhere, big banks continue to experiment with APIs. Boyd describes how big banks like Barclays and Lloyds “have created new payment and payment gateway APIs that they can monetize for merchants and other business segments. Nationwide, meanwhile, looks to be focusing on mortgages and loans, so they are trying to leverage APIs to bring in new loan customers.”

But, some of these experiments go way beyond customer acquisition and creating revenue streams. “NatWest, for example,” Boyd continues, “have experimented with a ‘one-click’ login offering for online checkouts, powered by calling their Customer Attribute Sharing API, that aims to compete with the likes of ‘Sign in with Klarna’. They also have FX APIs, detailed transaction details, and a range of payment gateways and options for business payment acceptance.”

It’s a bold attempt to streamline the process of online transactions, eliminating the need to enter bank details or long card numbers every time you check out, with API usage at its core.

A Future Beyond Banking?

In 2020, challenger bank Revolut partnered with TrueLayer to launch its Open Banking feature. It enables users to see accounts they have with other banks, track transactions and balances, and set budgeting controls, including Revolut and other bank accounts.

TrueLayer has also partnered with various traditional banks and businesses like William Hill, Just Eat, and lastminute.com. The product is an interesting case because it facilitates instant bank payments in any app or website and frictionless payouts in seconds.

Boyd predicts that “we will see banks working with more fintechs as partners to expand their ecosystem, especially since Visa and Mastercard are so aggressively reorienting themselves to an ecosystem approach with multiple partners in each country for a wider variety of use cases.”

That process goes the other way, too. Fintech company Chip uses open banking and AI to learn how much money users can realistically afford to save, set that money aside automatically, and find savings accounts provided by authorized UK banks that offer better interest rates.

As well as being an intriguing prospect for anyone looking to move away from physical cards or e-wallets, TrueLayer provides a fascinating glimpse at what a future beyond banking might look like. Imagine, for example, using a comparable offering in conjunction with Wise or Coinbase.

Then there’s Klarna, which is using APIs to connect with Worldpay at scale and has said they “want Klarna at every checkout, available everywhere, all of the time.” Crucially, although many users will be using their bank accounts to fund their accounts, these products are not banks.

Open Data Is Opening New Doors

Bob Hope once joked that “a bank is a place that will lend you money if you can prove that you don’t need it.” Some of the innovative fintech products mentioned above demonstrate that, if you need funding or want to manage your money, you don’t necessarily need to turn to banks anymore.

That said, it seems unlikely that the future will be entirely bankless. It does, however, appear that the UK government is all in on open banking and fintech. An OBL spokesperson states that “the announcement of the Data (Use and Access) Bill signaled clear intent from the Government about the importance of building on open banking’s data sharing principles, paving the way for open finance and a smart data economy worth an estimated £10 billion over the next 10 years.”

Whether banking or fintech, the UK’s finance space seems set to be one to watch. It’s an industry increasingly leaning on APIs and open data to reach some ambitious goals.