HM Revenue & Customs (HMRC) has extended its use of open banking to 24 further tax regimes so far this year – and estimates that it has saved the public purse about £500,000 (about $585,000) in bank charges since the department embedded open banking within its own operations almost 18 months ago.
The UK department created global government fintech history on 24 March 2021 when it introduced an open banking-enabled ‘Pay by bank account’ option (button) for people making online self-assessment tax returns – believed to be the first time any government in the world had embedded open banking within its own operations. Payment of three further tax types via open banking – PAYE (Pay-As-You-Earn) payments (tax paid direct from workers’ salaries), corporation tax and value-added tax (VAT) – was made possible shortly afterwards. The department ended last year with 19 tax types payable by clicking on this button.
HMRC confirmed to Global Government Fintech this week that, since the start of 2022, the department has added the ‘Pay by bank account’ option to a further 24 tax types. This adds up to a total of 43 tax types now payable to the UK government by open banking.
In enabling people or organisations to make payments to government by this method HMRC is striving to make payments to government simpler and safer, and to save government money. The public purse should save on the resource associated with tracking down payments that fail to arrive because payers have entered tax/payment reference or other information incorrectly, as well as saving on the interchange fee charged by card-providers.
“Based on assumed customer behaviour, we estimate open banking could have saved HMRC around £500,000 in bank charges since implementation,” HMRC’s head of payments Nick Down told Global Government Fintech this week. “But its greatest benefit is preventing payment mistakes such as keying errors. Around one in 20 payments to HMRC needs intervention, whereas open banking payments rarely do so. That is good for our customers and creates additional savings for HMRC, which we are using to further improve our payments customer service.”
How it works
Open banking involves the use of open application programming interfaces (APIs) to enable bank account holders to share their financial data with third parties. A growing number of governments worldwide are seeking to encourage open banking in order to boost competition and innovative financial services. But the UK government is a pioneer in actually itself using open banking to receive payments.
HMRC’s open banking rollout is being undertaken in partnership with fintech company Ecospend, which is providing the payments software to HMRC. The London-based firm was successful in an HMRC tender for open banking revealed by Global Government Fintech almost exactly two years ago.
Ecospend’s brief, worth up to £3m (about $3.56m), sees the company contracted to provide ‘account-to-account’ payment software that allows HMRC to process payments, or, to use its technical acronym, launch PISP (Payment Initiation Service Provider) services. Before 24 March last year, individuals and organisations making payments to HMRC have needed to open their banking software (for example, log in to their online bank account) and manually complete a bank transfer payment, also inputting their tax/payment reference.
Those opting to pay their tax via open banking ‘tick’ to provide consent for Ecospend to securely connect them to their online banking and initiate an authorised payment on behalf of HMRC (an ‘Open Banking Privacy Notice’ seeks to reassure users). The Ecospend-powered service uses validated and pre-populated payment details, enabling payments directly from a payer’s bank account. It is this automation that, its advocates believe, increases speed, reduces human error (for example, people mistyping their tax reference number), and also has the potential to reduce fraud.
‘Take-up growing strongly’
Among the 24 tax regimes that have been added this year are Gaming and Bingo Duty; the Climate Change Levy; Soft Drinks Industry Levy; and Customs Declaration Service.
In other developments, anyone filing a self-assessment tax return is now able to use the ‘Pay by bank account’ option from within HMRC’s mobile-phone app; and a QR code option went live in January 2022 to enable people to begin a payment on a desktop computer and complete it on a mobile device ‘securely and seamlessly’ (they need to be logged in to their HMRC digital tax account). HMRC has also more recently introduced the ability for customers to be able to see their open banking payments to HMRC in real-time via their digital tax account.
Between April-July 2021 and the same four months in 2022, the number of payments using the service increased from 249,000 to 739,000, with their value increasing by more than 240 per cent, HMRC told Global Government Fintech.
In January this year the department said that it had received ‘almost’ £2.5 billion (about $2.96bn) in taxes paid by open banking, a figure that had reached about £4.2bn by March (through 1.8 million individual payments). This figure now stands at £6.9bn (about $8.16bn), coming in via about 2.7 million individual payments.
“As we open the service up to more regimes, customer confidence and take-up have carried on growing strongly,” Down said.
‘Open to possibilities: governments bank on opening up financial services data’: Global Government Fintech‘s ‘Open Banking and Open Finance: What Role – And Benefits – For Governments?’ webinar held on 15 March 2022 (HMRC’s Nick Down was among the speakers)
Further enhancements on the way
HMRC is working on introducing further enhancements, which it hopes to make available within the next 12 months, Down said.
These include: allowing payments to be set up to be taken on a future date “to give customers more control over their future tax liabilities”; developing a webchat service to include “more payment options”; and “working with accounting software providers to deliver a solution to allow customers to pay as a part of their filing journey”.
“We listen to our customers telling us how they prefer to pay us and believe that enhancing and expanding our open banking options answers those customer needs and, in so doing, places HMRC at the forefront of open banking and open finance,” said Down. Open finance is the extension of open banking data-sharing principles to enable third-party providers to have access, with permission, to customers’ data across a far broader set of financial fields.
In the private sector in the UK, the chief executive of water company United Utilities has recently said that one in two of its customers has signed up for its open banking scheme, launched in 2021. The company is using financial data obtained (with customers’ permission) via open banking as part of an income-verification tool to assess if customers qualify for an affordable tariff, the UK’s Open Banking Implementation Entity (OBIE) reported in May.
FURTHER READING
Global Government Fintech’s dedicated ‘Open Banking & Open Finance’ topic section
‘HMRC extends open banking payments to nine further tax regimes’ – our news story (11 January 2022) on HMRC extending its use of open banking to tax levied on property purchases (stamp duty), capital gains tax and gambling duties (as well as six further tax types)
‘HMRC reaches milestone as £1bn in UK tax paid through open banking’ – our news story (29 September 2021) on HMRC reaching a milestone on its open banking journey
‘UK’s HMRC extends open banking to payroll payments’ – our news story (26 May 2021) on HMRC going live with a further step in embedding open banking into its operations just weeks after introducing the ‘Pay by bank account’ option for people making online self-assessment tax returns
‘One small website button, one giant leap for payments to government’ – an analysis (6 April 2021) of HMRC’s introduction of its ‘Pay by bank account’ option for people filing online self-assessment tax returns
GLOBAL GOVERNMENT FINTECH CASE STUDY
‘Open banking for tax payments: government case study’
WATCH
The Global Government Fintech Lab (held in Estonia on 1 June 2022) featured a panel session titled ‘How can fintech help government payments?’. Global Government Fintech editor Ian Hall raised the example of HMRC’s pioneering use of open banking between 21min-26min.
Watch the session in full (43min 45sec) =>
