Home Open Banking & Finance HMRC re-tenders open banking contract via new UK public sector purchasing system

HMRC re-tenders open banking contract via new UK public sector purchasing system

HMRC is using open banking technology to receive payments: a screenshot of Global Government Fintech’s article (3 February 2021) on Ecospend’s appointment three years ago | Credit: Ian Hall

HM Revenue & Customs (HMRC) is re-tendering a contract for the provision of open banking services to the department as its first such contract’s end-date approaches.

HMRC procured the services of fintech company Ecospend to enable the department to receive payments via open banking three years ago – a move that created a government use-case for open banking that apparently made the UK department a global pioneer and became a feather in the cap for the-then relatively unknown Ecospend, which competed against numerous major financial services companies to bag the contract.

HMRC’s contract with Ecospend was awarded on a ‘two years with one-year extension’ basis, running to 29 February 2024, making the re-tender an expected move.

As the department looks to award the successor contract, a spokesperson confirmed to Global Government Fintech today (21 February) that it was “looking forward to making use” of the ‘Open Banking Dynamic Purchasing System (DPS)’ that has just been set up by the Crown Commercial Service (CCS) to facilitate the use of open banking across the entire UK public sector. Public sector organisations are not obliged to use the DPS if they want to procure open banking services, so HMRC’s decision will please CCS.

“We’re looking forward to making use of the CCS Dynamic Purchasing System from next month and awarding the contract to the successful supplier later this year,” the HMRC spokesperson said.

RELATED ARTICLE UK public sector open banking aspirant supplier tally edges upwards – our news article (20 February 2024) on the CCS Open Banking DPS containing five companies (including Ecospend) six weeks after its launch

Ecospend: ‘HMRC has been a pioneer’

HMRC is understood to be planning to continue to use Ecospend after 29 February, lest it be left with a supplier void.

Ecospend’s chief commercial officer James Hickman confirmed to Global Government Fintech that the company was looking to continue to work with the department, saying: “HMRC has been a real pioneer in this space and our appointment three years ago was a pivotal moment in our evolution. It’s been a real privilege to be part of the department’s open banking journey so far.”

HMRC is believed to be in the throes of finalising details of the new open banking supplier contact. It is understood that there are expected be some differences to the first contract, which had a value of ‘£525,000 to £3,000,000’.

The spokesperson revealed that its open banking specialists were looking to “build on positive market engagement sessions at the end of 2023.”

Aspirant open banking suppliers to government through the CCS Open Banking DPS are being uploaded to it at a current rate of about one per week. Global Government Fintech reported earlier this week (20 February) that Ecospend – whose acquisition by Sweden-headquartered Trustly completed in January 2023 – is one of five suppliers listed. The other companies are NatWest, Moneyhub, OneID and the Smart Request Company (Ordo).

HMRC does not have certainty on how many suppliers will be on the CCS Open Banking DPS by next month but it is understood that it expects the number to increase from the current five: in theory, potentially intensifying competition for the new contract. HMRC staff involved in the re-tender include Melanie Reid, who six months ago moved from the role of senior payments strategy project manager to open banking services manager.

FURTHER READING One small website button, one giant leap for payments to government? – an article (6 April 2021) on HMRC’s launch of its open banking-enabled ‘pay by bank account’ option for people filing online self-assessment tax returns (i.e. ‘going live with open banking’)

CCS Open Banking DPS: how it works

The Open Banking DPS has been set up by CCS, which is an executive agency of the Cabinet Office, with the ultimate aim of ‘reducing the costs of receiving money into public sector organisations, as well as reducing fraud’.

Frameworks (or agreements) overseen by CCS help public- and third-sector buyers to procure goods and services from a list of pre-approved suppliers, with agreed terms and conditions and legal protections. Creation of the open banking DPS – referred to by CCS as ‘RM6301’ (‘RM’ is used in all CCS agreement reference numbers) – followed the publication last year of an ‘Open Banking Dynamic Purchasing System (Data, Digital Payments and Confirmation of Payee Services)’ prior information notice, which stated a total value of £800m (about $1bn) over eight years.

Dynamic purchasing systems are one of four types of agreements available through CCS. A DPS allows suppliers to join at any time, ‘increasing competition and choice and meaning that it is open to new businesses, innovations and emerging technologies throughout the life of the DPS’ – a potentially helpful facet given the pace with which open banking-related technology has developed and new suppliers have emerged.

Companies looking to join the five companies on the Open Banking DPS need to pass CCS checks on areas including their ‘financial health’, cyber-security procedures and compliance with modern slavery rules. A ‘selection questionnaire’ testing potential suppliers’ suitability and capability to provide services to the public sector also needs to be completed.

RELATED ARTICLE Public sector’s potential to drive open banking take-up highlighted at London event – a news story (17 October 2023) reporting on a panel discussion titled ‘Open Banking: The Future Is Now’ during an event organised by UK fintech trade association Innovate Finance (Ecospend’s James Hickman among those featured)

HMRC’s open banking journey

The UK is widely seen as global leader when it comes to developing an open banking ecosystem in the private sector, spurred by the creation of its Open Banking Implementation Entity (OBIE) in 2016.

In the public sector HMRC created global government fintech history on 24 March 2021 when it introduced open banking’s customer-facing manifestation – a ‘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.

Global Government Fintech reported in February 2023 that HMRC had completed its rollout of open banking across all tax payment types capable of supporting it. The department’s head of open banking payments, Rachel McLaren, speaking at the Global Government Fintech Lab 2023 event in Ireland (on 18 May) said that HMRC had (up to that point) received more than 5.5 million tax payments – worth a total of about £13.5 billion (almost $17bn) – through open banking since the department introduced the option to do so, according to. (Global Government Fintech reported figures of 4.5 million tax payments worth about £12 billion in February 2023).

In terms of the practicalities of how HMRC has embedded open banking from a user (payer) perspective, those opting to pay their tax to HMRC via open banking click on the ‘pay by bank account’ option and ‘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.

RELATED ARTICLE UK government backs open banking with £100m-a-year eight-year supplier plan – our article (14 June 2023) on the CCS’s plans to create the DPS

‘Negating’ debit-card payment fees

Explaining the decision to create the open banking DPS, the CCS stated in its announcement that the DPS had ‘gone live’ (on 12 December 2023) that ‘these services, which allow for read-only financial data to be shared between banks and third-party service providers, are designed to provide access to quicker, cheaper and more accurate banking services versus conventional payment acceptance methods, such as debit cards.’

‘By negating fees incurred by traditional debit-card payments, it is believed the DPS could help achieve savings of 70-80 per cent,’ the CCS stated. ‘The services offered under the agreement could also help reduce the volume of fraudulent or in-error payments made throughout the public sector by confirming or denying the identity of account holders. This will unlock the ability of open banking to clamp down on fraudulent activity, including false tax and benefit claims.’

Further ‘innovations and benefits’ mentioned in the CCS’s announcement of the DPS include: ‘allowing for more accurate understanding of personal financial circumstances, enabling more precise assessment of means’; ‘enabling vulnerable members of society to receive vital payments quicker’; and making it ‘easier for small- and medium-sized enterprises (SMEs), which make up a large number of the UK’s existing open banking providers, to become suppliers.’

The prior information notice, which was published on 8 June 2023, noted that suppliers must have necessary Financial Conduct Authority (FCA) authorisations to provide open banking services.

RELATED ARTICLE HMRC completes open banking rollout and sets out new priorities – a news story (15 February 2023) on HMRC’s pioneering use of open banking

NS&I also using Ecospend

HMRC’s head of payments, Nick Down, has previously told Global Government Fintech of ‘increasing interest’ across UK government in using open banking – a trend manifested in the CCS Open Banking DPS’s creation – while a cross-government open banking working group includes representatives from HMRC, as well as Government Banking Services (GBS) and Government Digital Services (GDS).

In terms of actually procuring open banking technology solutions, state-owned savings bank NS&I (National Savings & Investments) followed HMRC’s lead in engaging a fintech company – also Ecospend – last year to enable the use of open banking technology to enable people to make payments.

NS&I, which is a non-ministerial department, announced in May 2023 that people would be able to select an HMRC-style open banking-enabled ‘Pay by bank account’ option when making online payments to NS&I.

NS&I is best known to the public through its issuance of Premium Bonds and other savings products. But it also runs NS&I Government Payment Services (NS&I GPS), which provides banking and payment services for other government departments, including working with HMRC on ‘Help to Save’, ‘Tax-Free Childcare’ and ’30 hours free childcare’.

Beyond its breakthrough contracts in the UK public sector for HMRC and NS&I, Ecospend has private-sector clients including ITV and ‘wealthtech’ app Hargreaves Lansdown.