Glossary

These are banks, or other similar businesses, that offer payment accounts as part of their business.

In the simplest terms, APIs are connectors. They let different pieces of software, or applications, talk to each other and share information. Think of them as clever interpreters or translators. They work as part of an overall system or architecture that’s divided into small groups, known as microservices. APIs can be used to let the microservices talk to each other. You can read more about APIs here[KC1] .

Retail banks are what first comes to mind when we think of banks. They make profits when the amount of interest they receive from borrowers exceeds that which they pay out to savers. Traditional banks have been using this model for hundreds of years[KC2] . In the UK, we have the “Big Four’ group, which comprises HSBC, NatWest, Lloyds and Barclays.

Big data describes information that is large in quantity, fluctuates frequently and is complex and/or fast-flowing. [KC3] Such data is often an output of the open banking movement.

These are third-party providers that can check whether or not a customer’s payment account is in credit.

Having gained banking licences after the financial crisis, these banks are small, relatively new operations with strong digital capabilities. [KC4] For the most part, challenger banks do business online, but some have physical premises, too.

The CMA is the UK’s main competition regulator. It released a report stating that UK retail banking was “not as innovative or competitive” as it needed to be[KC5] , leading to the start of the open banking movement.

An automated payment method, often used by individuals to pay their household bills. May soon be replaced by variable recurring payments (VRPs). [KC6] These are expected to behave much like direct debits, but with one key difference – the receiver will be able to vary the amount collected without express authorisation from the payer. VRPs could therefore make significant changes in the way we all pay things like utility bills.

E-commerce is the buying and selling of goods online. Its rise in popularity is one of the key drivers behind the open banking movement.

Fintech is all about automating and improving financial services[KC7] . It has a strong link to open banking movement, with fintech businesses such as APIs and microservices providing much of open banking’s functionality. By its very nature, the industry is fast-paced, innovative and highly creative.

This European regulation is intended to strengthen data protection for EU citizens. In the context of open banking, it means that organisations must only hold personal data that is both compliant with the regulation and necessary for the purpose for which it was requested.

An order by the UK Competition and Markets Authority states that these ASPSPs must enrol with open banking.

A microservice is a small part of a larger system architecture. Microservices use application programming interfaces (APIs) to “talk” to each other. Microservices allow technology businesses to be flexible and responsive with the solutions they provide. They feature strongly in open banking, particularly in providing transaction services.

Put simply, open banking is about sharing information[KC8] . The idea is that this can give consumers access to a wider range of financial services to better meet their needs. Importantly, consumers should always be able to choose whether or to what degree they are happy to take part.

The job of the new Open Banking Implementation Entity (OBIE) is to nurture the development of open banking in the UK.[KC9]

A payment initiation services provider uses a credit transfer process to allow purchases directly from an individual’s bank account, rather than via a debit or credit card.

PSD2 came into force in 2018. The legislation means that the biggest banks in the UK have to give other authorised parties access to some of the information they hold on their customers’ accounts and transactions. Banks must store this data in a standard format to make sharing easier. They also have to make sure it is secure and only share it with approved entities.

The regulatory technical standards are listed under PSD2 and are intended to make online payments safer and more secure. They relate to areas such as strong customer authentication and secure communications.

More than 99% (around 6 million) of the UK’s businesses are small or medium-sized enterprises (SMEs), meaning they have fewer than 250 employees. Read more about how open banking will affect them here.[KC10]

The rules by which payment service providers or banks identify customers or validate transactions.

Third-party providers can access customer accounts, either to provide information, or allow transactions to take place. They use APIs, which must work in accordance with PSD2 standards, to carry out this business.

VRPs are expected to behave much like direct debits[KC12] , but with one key difference – the receiver will be able to vary the amount collected without express authorisation from the payer. VRPs could therefore make significant changes in the way we all pay things like utility bills.