Home Open Banking & Finance UK public sector open banking ‘dynamic purchasing system’ opens for business

UK public sector open banking ‘dynamic purchasing system’ opens for business

UK ambition: the government is encouraging the public sector’s use of open banking | Screenshots of Global Government Fintech articles on 14 June 2023 and 17 October 2023

UK authorities’ plans to encourage and facilitate the use of open banking across the public sector have taken a step forward with the launch of a ‘dynamic purchasing system’ by the Crown Commercial Service (CCS).

The ‘Open Banking Dynamic Purchasing System (DPS)’, which is intended to become a ‘vehicle’ for central government and the public sector to source open banking services, has the ultimate aim of ‘reducing the costs of receiving money into public sector organisations, as well as reducing fraud’.

Companies looking to supply open banking-related services to the UK public sector are now able to formally contact the CCS – an executive agency of the Cabinet Office – to join the DPS, which will open for use by public sector buyers from 8 January 2024.

The DPS’s launch comes six months after the publication of a ‘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. 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’ – a potentially helpful facet given the pace with which open banking-related technology has developed and new suppliers have emerged.

Companies looking to supply their services via the DPS will 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 will need to be completed. Public sector organisations are not obliged to use the DPS if they want to procure open banking services.

Seeking to ‘negate’ debit-card fees

Explaining the decision to launch the open banking DPS, the CCS states 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 states in its announcement that the DPS has gone live.

‘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,’ it continues. ‘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.’

“We’re delighted to be launching the first comprehensive open banking agreement in the public sector, offering significant savings and vital innovations in financial capability. This solution is built on extensive market engagement with a range of providers, from major banks to fintech start-ups and government institutions,” said CCS chief executive Simon Tse.

“The flexible agreement reaffirms our commitment to providing maximum value to our customers, and opens up opportunities for a diverse spectrum of suppliers in an exciting emerging market,” added Tse, who is due to retire from the organisation next year (recruitment is underway for a successor).

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

HMRC in the vanguard

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.

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’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. (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 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 (i.e. ‘going live with open banking’)

Hello RM6301: nice to meet you

The open banking DPS is being referred to by CCS as ‘RM6301’ (‘RM’ is used in all CCS agreement reference numbers). Its webpage explains that public sector organisations will be able to use the DPS to access open banking services including: Payment Initiation Service Providers (PISPs), which ‘let you pay companies directly from your bank account rather than using your debit or credit card through a third party, such as Visa or Mastercard’; and Account Information Service Providers (AISPs) – ‘being an authorised AISP means that a company can access an individual’s bank account data from their financial institution with their explicit consent’.

The RM6301 webpage sets out the benefits of open banking (in general, as distinct from the benefits specifically of using the DPS) as including: reducing customer transaction costs ‘where card payments are the existing and only method of payment’; enabling payments to be made directly from bank account to bank account ‘without the need to repeatedly input details’; and that it ‘includes real-time bank account data to confirm payee account details reducing the risk of error payments and minimising losses due to fraud’.

The DPS provides three main ‘service areas’ – digital payments, account information and Confirmation of Payee (CoP) – which each contain sub-categories. The first of these, for example, includes: payments in; payments out; direct debits; the designing and building of a webpage that allows public sector organisations to make and/or receive payments. For account information, the DPS states that supplier services ‘may include’ fraud services; identity services; ‘income verification’ services; affordability services; ‘risk identification’ services; and ‘transaction/fund tracing and monitoring services’.

The RM6301 webpage adds that ‘existing customers of the Payment Acceptance framework can transition to Open Banking’. This is a reference to a pre-existing CCS arrangement (Payment Acceptance – RM6118), which is running from 2020-2024 and contains 15 suppliers (companies). Public-sector buyers using this framework are procuring services that allow for card-based payments whereas open banking is non-card payments through the ‘account-to-account’ route.

‘The transition refers to [public sector] customers taking up the option to include non-card solutions either as part of their payment acceptance offering or by completely moving to non-card based solutions,’ a CCS spokesperson sought to explain to Global Government Fintech. ‘All suppliers [companies] must register to join the Open Banking DPS and go through the selection questionnaire regardless of inclusion on any previous CCS agreements.’

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 (includes the department’s head of payments, Nick Down, describing “increasing interest” across UK government in using open banking)

More than 18 months in the making

CCS has been exploring the possibility of creating the DPS for more than 18 months, with the RM6301 webpage noting that ‘pre-market engagement’ began in May 2022.

The webpage states that ‘several central government departments have attended a significant number of market engagement sessions’ – a reflection of interest in open banking’s potential for the public sector having spread beyond HMRC. It also notes that ‘colleagues from these departments have made up the members of [an] open banking working group’.

The prior information notice stated that CCS ‘intend[ed] to launch for supplier onboarding’ from late-July with the DPS ‘anticipated to go live for use in the autumn’. Contract start and end dates, respectively, were specified as 31 August 2023 and 31 August 2031.

CCS told Global Government Fintech a couple of months ago that the date of the DPS’s release had been pushed back from the ‘indicative’ timings because of ‘additional necessary work to ensure the platform delivers the established requirements’. Its revised planned issuance date, at the time, was around 23 November.

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

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

RELATED ARTICLE UK Government Digital Service to explore adding open banking to Gov.UK Pay – a news story (14 August 2023) based on a blog-post by Amanda Dahl, deputy director of digital service platforms in the Government Digital Service (GDS), which is part of the Cabinet Office

From acorns grow trees

The CCS’s motivations for encouraging open banking are in line with reasons previously shared with Global Government Fintech by HMRC. These have included 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 card-providers’ interchange fees.

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 need to click on 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.

When CCS’s DPS-related prior information notice was published in June, UK open banking advocates warmly welcomed the move. Simon Lyons, who worked with HMRC as the department ran its open banking procurement, told Global Government Fintech at the time that it was ‘wonderful’ to see the government creating the roster.

‘The public sector stands to benefit from the wider availability of open banking-based solutions,’ Lyons said, adding that it was ‘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.’ Lyons is a former head of ecosystem engagement at OBIE and now works as chief strategy officer for open banking company OBConnect.io.

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

Public sector ‘embrace’ is welcome

Government and public authorities’ ability to drive growth in open banking in the private sector through procurement was hailed during a panel session titled ‘Open Banking: The Future Is Now’ at a one-day conference organised by the UK’s fintech trade association, Innovate Finance, in London a couple of months ago.

Innovate Finance’s director of policy, Adam Jackson, described three ‘ingredients’ for the UK’s relative success to date in developing an open banking ecosystem, including government ‘embracing’ it through public sector use of the technology.

‘HMRC [using open banking] is a fantastic example: it’s got people using open banking payments, trusting it [open banking],’ Jackson told the audience on 5 October. ‘Looking forward [we] want to see more of that: I want to be able to pay my council tax, my car tax [and so on] by open banking, so the more government extends that the better.’

It is eight months since the UK government launched the Smart Data Council, which aims to facilitate the replication of the relative success of open banking in other sectors.

Senior figures at CCS, which has more than 800 staff across five main locations in the UK, involved in the open banking DPS include head of payments categories Lee Edmonds.


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