Home Open Banking & Finance UK government backs open banking with £100m-a-year eight-year supplier plan

UK government backs open banking with £100m-a-year eight-year supplier plan

Parliament Street, London: home to the HQ of HMRC, which has pioneered the use of open banking to receive tax payments (as detailed in a Global Government Fintech case study - inset) | Credit: Ian Hall

UK authorities are to make a major show of commitment in the possibilities of fintech for government by creating a ‘dynamic purchasing system’ for open banking services for use across central government and the public sector.

The plans are revealed in a notice – which states a total value of £800m (about $1bn) over eight years – published by the Crown Commercial Service (CCS), an executive agency sponsored by the Cabinet Office, entitled ‘Open Banking Dynamic Purchasing System (Data, Digital Payments and Confirmation of Payee Services)’.

The first such CCS arrangement for open banking services will ‘provide a vehicle’ for central government and the public sector to source open banking services, including digital payment services, account information services and confirmation of payee (CoP) services.

The government’s plans owe to the ‘ongoing growth and development of the open banking market’, according to the prior information notice (PIN), which states that CCS ‘intends to launch for supplier onboarding’ from late-July with the dynamic purchasing system ‘anticipated to go live for use in the autumn’.

The notice specifies a budget of £100m per year for all financial years between 2023/2024 and 2030/2031. Contract start and end dates, respectively, are specified as 31 August 2023 and 31 August 2031.

OPEN BANKING: EXPLAINED Open banking, and its sibling concept open finance, are being encouraged by governments worldwide, in different ways and at different speeds, as a means of boosting innovation and competition in financial services. It is a reference to users sharing their data with third-parties (for example, fintech companies). ‘Open’ refers to open application programming interfaces (APIs): software intermediaries that allow two machines to interact. ‘Open APIs’ are APIs made publicly available to software developers. Global Government Fintech’s focus is on its potential to improve public service delivery.

HMRC’s pioneering approach

The UK is widely seen as global leader when it comes to developing an open banking ecosystem, spurred by the creation of its Open Banking Implementation Entity (OBIE) in 2016. It has also blazed a trail in terms of public sector use of open banking.

First mover in terms of public sector use was HM Revenue & Customs (HMRC), which procured a fintech solution to enable the department to receive payments via open banking in March 2021 – a government use case for open banking that has apparently made the UK department a global pioneer.

HMRC has now 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 the department’s head of open banking payments, Rachel McLaren, speaking at last month’s Global Government Fintech Lab event in Ireland. (Global Government Fintech reported figures of 4.5 million tax payments worth about £12 billion in February 2023).

Global Government Fintech reported earlier this year that HMRC had completed its rollout of open banking across all tax payment types capable of supporting it. The department’s head of payments, Nick Down, spoke at the time of ‘increasing interest’ across UK government in using open banking.

NS&I (National Savings & Investments), a UK state-owned savings bank, has recently followed HMRC’s lead in engaging a fintech company to enable the use of open banking technology to enable people to make payments. NS&I, which is a non-ministerial department, is using the same fintech company – Ecospend, whose acquisition by Sweden-headquartered Trustly completed in January – that HMRC has been using for the same purpose.

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, with open banking’s advocates hailing the moment’s significance

CCS’s dynamic way forward

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.

Dynamic purchasing systems (DPS) 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’.

Setting the value of the proposed (total) open banking spend in context, Global Government Fintech reported almost 18 months ago that CCS had created a four-year ‘Debt Resolution Services’ roster with a total proposed work value of £645m.

The CCS open banking notice, which was published on 8 June, states that it will hold a ‘final’ supplier webinar in on 17 July to ‘walk through and take questions’ before ‘supplier onboarding’. It notes that bidders must have necessary Financial Conduct Authority (FCA) authorisations to provide open banking services.

Key players at CCS involved in the initiative include head of payments categories Lee Edmonds and category manager for opening banking Camilla Waugh.

UK government ‘leading way again’

Reasons given by HMRC for using open banking technology to take payments include saving on the resource associated with tracking down payments that fail to arrive because payers have entered their tax/payment reference or other information incorrectly (‘keying errors’), as well as saving on the interchange fee charged by card-providers.

Those opting to pay their tax to HMRC via open banking use a website button titled ‘pay by bank account’ 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. It is this automation that, its advocates believe, increases speed, reduces human error, and also has the potential to reduce fraud.

UK open banking advocates will warmly welcome CCS’s move.

Simon Lyons, who worked with HMRC as the department ran its open banking procurement, told Global Government Fintech that it was “wonderful” to see the CCS’s plans.

“The public sector stands to benefit from the wider availability of open banking-based solutions. It is a credit to UK government that what was initially a direct award [contract] with limited availability [HMRC’s Ecospend contract] is a now a premise that can be easily acquired by the entire public sector estate. UK government is leading the way again with open banking across the world,” said Lyons, who is a former head of ecosystem engagement at OBIE and now works as chief strategy officer for open banking company OBConnect.io.


Global Government Fintech’s Open Banking / Open Finance topic section