Alice Rivlin, former vice chairwoman of the Federal Reserve Board, once said “the job of the central bank is to worry.” However, with ever-changing regulations and external pressures, you could argue that Rivlin’s statement now applies to every bank.

During the 2008 financial crisis, global banks were leaned on heavily because they were considered “too big to fail.” When cracks began to show, with some banks failing entirely, the prevailing opinion was that adding more competition to the banking sector was a good thing.

As a result, we saw several smaller companies and startups (as well as subsidiaries of existing banks) apply for banking licenses. Deposits made with any licensed banking company are protected by the Financial Services Compensation Scheme (FSCS), up to £85,000, which has given UK customers enough peace of mind to embrace many of these smaller banks.

Challenger banks and fintechs have sought to capitalize on technological innovation to expand rapidly and capture niche audiences. Below, we’ll round up how a few of the UK’s leading challenger banks are taking advantage of APIs. What is certain is APIs have a clear role in the future of finance in the UK and beyond.

How Open Banking Changed the Game

The first challenger bank came, arguably, in 2010 with the launch of Metro Bank. (Although Virgin Money and its history of acquisitions and rebrands could also make this claim). At that time, they were the first entirely new bank in the UK for more than a century.

These days, however, Metro Bank looks a lot more like established banks such as NatWest, Lloyds, or Barclays. Mostly founded over the last decade or so, what we now think of as 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 user-friendly apps. The wider availability of data, facilitated by open banking, is one of the reasons that challenger banks are able to operate in the way they do.

Open banking was introduced in the UK in 2018, with the UK’s nine largest banks and building societies required to make customer data available to regulated companies via APIs. And there are now various challengers out there taking advantage of APIs and integrations to offer some interesting functionalities beyond what you might expect from financial institutions.

7 Challenger Banks and Fintechs That Use APIs

As you can deduce from all of the above, APIs play a decisive role in facilitating the flexibility and agility that most challenger banks seek to offer. What follows is a (not exhaustive) list of how a few challenger banks and related companies are deploying APIs to their advantage.

1. Monzo

Founded initially as a prepaid card provider, later transitioning to fully-fledged bank accounts, Monzo (along with Revolut) is now a household name in the UK. Indeed, the company’s app was named the best banking app in 2023’s British Bank Awards.

Monzo boasts an active developer community, inspiring things like third-party curated lists of tools on Github, with a community forum, extensive documentation, and a playground for their API. Using that API, developers can see accounts, savings pots, balances and transactions, look up account details, move money in and out of pots, and more.

What’s interesting here is that Monzo’s relationship with APIs involves not only the consumption of open banking data but also the provision of their own API for building extensible services.

2. Revolut

Revolut partnered with TrueLayer, a self-described “open banking payments network,” in 2020 to launch their open banking feature. It enables users to see accounts they have with other banks, track transactions and balances, and set budgeting controls that include their Revolut account(s) and those with other banks.

The connection also facilitates instant bank payments to TrueLayer partners like William Hill, Just Eat, lastminute.com, and others. It’s an intriguing prospect for anyone looking to move away from physical cards or e-wallets when making purchases online.

3. Starling

Back in 2018, Starling Bank set up a marketplace that connects with a range of financial services providers. Its debut demonstrated how APIs can connect challenger bank accounts to one’s wider financial life, including accounting, insurance, pensions, and other areas.

Despite stating that they hoped to have 25 partnerships in place by 2019 (the marketplace opened with 11 providers), that number has since dropped to eight. This may be less a comment on Starling’s success than one on how competitive this space has become since then.

4. Zopa

In addition to their partnership with TrueLayer, Zopa has partnered (likely using APIs) with various other financial companies like Experian and Embark to access better credit options, assess the affordability of loan products, and get access to debt advice.

Recent partners include John Lewis Money, Octopus Energy, and The Money Charity to take out personal loans, transition to green energy, and access financial education, respectively. Moving away from their initial peer-to-peer lending model, Zopa (now a regulated bank) has open APIs to thank for a range of integrations you might not expect from traditional banks.

5. ClearBank

ClearBank offers both embedded banking and clearing, which is the process of exchanging information and settling transactions between financial institutions. The service’s API provides access to payment schemes like BACS, Faster Payments (FPS), CHAPS, and Cheques in the UK, as well as SEPA Credit Transfer and indirect access to TARGET2 (T2) in Europe.

Although ClearBank is a regulated bank, their target market appears to be banks and fintechs, to whom they offer “real-time payments and innovative banking products.” (They are included as a challenger here because they enable end users to scale at speed without having to worry about clearing).

6. Kroo

As well as offering interest on current account balances, Kroo enables users to delve into categorized insights into their transactions and settle up with friends. It is, perhaps, only a matter of time before most banks offer this functionality to compete with the likes of Venmo.

You can also use their Visa-powered debit cards overseas without incurring additional fees in lieu of the ECB average rates available to consumers based elsewhere in Europe. The odds are good that Kroo uses Visa’s Foreign Exchange Rates API to obtain this information.

7. Tandem

Tandem is an interesting example of a niche challenger bank. While other niche challengers on the market cater to LGBTQ+, “buy to let,” and Islamic audiences, Tandem focuses on rewarding users for making greener choices and helping them to do so. They incentivize customers by using available information about home energy efficiency (an official UK government Domestic Energy Performance Certificates API is available) and vehicle emissions to determine eligibility for rate discounts and suitability for green partnerships.

Will Challenger Banks Survive?

Despite early optimism, reactions to open banking have been mixed. KPMG argues that “1 billion API calls per month” means it has “undoubtedly been a success so far.” Elsewhere, Sifted suggests that adoption has been “slower than expected” and that just “one in seven digitally active consumers in the UK had used open banking.”

Beyond that, challengers face competition from established banks, who are also taking advantage of open banking in their own ways. The Guardian’s Nils Pratley comments: “Size remains an enormous advantage in retail banking, in terms of everything from funding costs to investment in new tech and whizzy apps. Assistance for challengers from regulators never really materialized.”

Challenger banks are under pressure to keep challenging and may need to find new ways to do so. If Pratley is correct, they’ll have to be pragmatic… because the cavalry may not be on their way.

With that said, those in the UK have demonstrated a real appetite for challenger banks — the risk limitation offered by the FSCS covering deposits up to £85,000 is no doubt a factor there — and it’s evident that many Brits are actively re-thinking what banking means to them.

The faster challengers grow, the more likely they’ll attract interest from incumbent players. And with that interest will inevitably come takeover bids — Nationwide acquired Virgin Money in October 2024, and The Carlyle Group looked at buying out Metro Bank in 2021. More of these are likely to follow.

But for those who do go it alone, the potential rewards are enormous. Just take The Bank of London, a clearing, correspondent, and wholesale bank launched by entrepreneur Anthony Watson in 2021. After spending four years developing their offering pre-launch, they entered the market with a $1.1 billion valuation, achieving instant unicorn status.