The open banking ecosystem in Europe and the UK remains one of the most advanced – if not the most advanced – in the world. While success has been mixed thus far in terms of adoption, regulators and major players continue to take steps toward enabling its success. The latest comes in the form of premium APIs related to payment initiation and data sharing, via the latest open banking scheme: SPAA. While still early in its rollout, this approach can provide a model for other markets looking to make open banking scalable, faster. While in Europe, this is coming as a later add-on, if successful it might make sense to consider embedding premium API's into open banking schemes from the beginning.
For any that might be hearing about the SPAA for the first time, here is a deeper dive into what it is, what it’s trying to achieve and what it includes.
Before diving further into the SPAA, its context in relation to open banking and PSD2 must be addressed.
Open banking has had mixed success to date across the UK and Europe. In the UK, 7 million consumers and businesses have used open banking services, as of February 2023. In 2020, there were 12.2 million users across Europe. This compares to at least 65 million in the US, as of May 2023. Although some data points are outdated and may not be exactly like for like, updated data would tell the same story.
One of the key reasons this may not have been more broadly adopted is that it lacks a scalable commercial model that incentivises banks and financial institutions to invest in it. These providers incur annual costs of £100 million in the UK alone, according to the recent Future of Payments Review, and have incurred £1.5 billion total in costs to date, with no scope to recoup anything and a resulting increase in competition. Across Europe, the cost is likely to be similar but larger in absolute terms, given the significantly higher number of banks in operation.
Given these costs, it is no surprise there is still trepidation and scepticism around open banking from banks and other financial services businesses.
SPAA is designed to build on the great work done with PSD2 and open banking by addressing this commercial gap through “premium” APIs with additional functionality vs that which is specified by the free APIs they have to provide as part of open banking.
The need to create a commercial model was one of the key points raised in the UK Government's Future of Payments Report in November 2023, which it appears is already underway.
The SPAA is a scheme that outlines rules, practices and standards for “premium” APIs related to payment initiation and data sharing.
For a quick clarification, SPAA covers “premium” APIs and is designed to be built on top of the "basic" services provided under PSD2.
The SPAA defines four roles within the context of its rules which help set the scene for what SPAA enables:
The focus of the SPAA is to promote and encourage the use of open banking for payments. It is not a payment method in itself nor is it a payment instrument. Rather, it’s more of a framework and messaging system designed to communicate (in the same way that Visa and Mastercard are messaging networks NOT payment networks).
Much like PSD2 and open banking has the concept of Account Information Services (AIS) and Payment Initiation Services (PIS), SPAA unsurprisingly has the same services in scope. AIS relates to data, and PIS relates to payments.
Broadly, SPAA defines and describes the two types of services as below:
The SPAA outlines a number of payment use cases that could be built with the new “premium” API features that are not currently enabled by open banking and PSD2, but that they believe will provide functionality that consumers and businesses demand to drive adoption, including:
The specific “premium” API features that apply to the above payment use cases are:
For Data Assets, SPAA outlines new “premium” data that can be accessed from Asset Holders by Asset Brokers, which includes:
Some of the details that could be available, such as product name, usage, credit conditions and interest conditions, would be very useful for PFMs to know so they can recommend higher yielding or lower cost products.
Some of the personal information such as date of birth, age and phone number could be used for enhanced authentication and verification to help combat fraud.
First thing is first: SPAA is very new. The scheme was only open for companies to join as of December 2023, and TrueLayer was the first to join last week. Given the other companies in the “Multi-Stakeholder Group” (MSG), others like Paysafe, Trustly, Plaid and Tink may join soon.
The scheme is voluntary, which may also hinder adoption, as without broad coverage of the major European banks, it is less useful. This was one area where open banking and PSD2 did well: they mandated the scheme across Europe, and the same was done in the UK. There do not seem to be any UK banks or financial institutions on the MSG list, so it remains to be seen if the UK will create something similar. However, they would miss out if they don’t.
I am sceptical that banks will sign up on their own given that these APIs will only increase the ability of fintechs and other competitors to attract a bank’s clients, but it does paint a picture that is positive for the consumer, in theory.
It’s early days, but this is an optimistic development for open banking.
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Michael Jenkins has an extensive background in financial services and fintech across strategy and marketing, where he has developed a deep knowledge and network in the space across Europe and the US.
He uses this experience to help startups understand the fintech landscape and effectively communicate their product and vision to customers. He has been writing about fintech for the past three years with his weekly newsletter This Week in Fintech UK & Europe and also Fintech Across The Pond for his longer content and deep dives. You can find him on Twitter and LinkedIn.