A public authority in England’s West Midlands is to become the latest council to embed a fintech tool that capitalises on open banking technology to offer a new way to disburse government money to residents.
Coventry City Council is working with a company, PayPoint, to introduce a new way for people to receive payments under central government’s Household Support Fund (HSF) scheme: funding for people deemed ‘vulnerable’ or unable to pay for essential items.
The authority is on the cusp of going live with the company’s ‘OpenPay’ digital payments service to disburse the funds. In doing so, the city will join about 20 other English local authorities to date, including Sheffield City Council and Middlesbrough Council, in using PayPoint’s solution.
Those championing the service list multiple advantages of using OpenPay ahead of existing disbursement methods – both for the organisations disbursing funds and recipients.
These advantages include that OpenPay enables greater choice for people in how they receive their money; should protect people against fraud by ensuring payments can only be made to verified accounts; means that councils do not themselves need to collect and confirm bank details from people (and reduces the risk of storing and handling such data); potentially increases access for those with reduced mobility and other vulnerable people; helps to preserve dignity for those who feel embarrassed about receiving and redeeming government social payments; and potentially helps with environmental savings, for example by reducing use of cheques.
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. ‘Open’ refers to open application programming interfaces (APIs): software intermediaries that allow two machines to interact. Global Government Fintech’s focus is on its potential to improve public service delivery.
Quicker access to money
The council has, until now, distributed HSF payments using another PayPoint service called ‘CashOut’. This involves sending out vouchers via an email, text message (SMS) or postal letter. The vouchers include a barcode that needs to be scanned at selected retailers (which have to be part of PayPoint’s national network) in exchange for cash.
People opting to use OpenPay need to have a mobile-phone (and active mobile-phone service) and bank account. Those choosing to receive payments via OpenPay will receive a text message with a weblink to their personal voucher. After clicking on the weblink, they will be directed to their bank account (either via their banking app, if they have installed it, or via their bank’s website).
At this point, open banking technology kicks in with Account Information Services (AIS) and Confirmation of Payee (CoP) checks. AIS and CoP are both reliant on open APIs. The former uses API technology to access a customer’s bank account and view account information. The latter is a name-checking service that uses open APIs to automatically cross-reference names against account information held by payment service providers in real-time. Assuming that the voucher’s intended recipient’s name matches the name of the bank account, the payment is then transferred to the recipient.
Coventry City Council’s customer facing and mediated digital team manager, Andy Howard, is among those steering the introduction of the new service.
The council’s cabinet member for housing and communities, councillor Naeem Akhtar, told Global Government Fintech: “Our main goal is always to find ways to better serve the needs of our residents. We believe this technology will make a material difference to the way people access this fund [HSF], making it easier and quicker for the most vulnerable in the city to get the support they need.”
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‘Major untapped potential’
PayPoint managing director for client services Jo Toolan described Coventry City Council’s decision to introduce the use of OpenPay as illustrative of increasing willingness across different tiers of the UK public sector to use fintech solutions.
“There is major untapped potential across local and central government in capitalising on open banking technology,” she told Global Government Fintech. “It will be great to see Coventry City Council using OpenPay to revolutionise how funds are distributed and also potentially helping to help reduce reliance on cheques, which so many parts of the public sector continue to wrestle with.”
OpenPay can also be used for the provision of salary advances, refunds and compensation payments – and indeed in any instance where organisations need to disburse funds without holding recipients’ bank account details.
Key players on the PayPoint side include client sector lead Chris Gardner and digital payments product manager Melanie Reid. The latter joined PayPoint in September from HM Revenue & Customs (HMRC), where she was open banking services manager.
PayPoint’s back-end open banking tech is supplied by a different company, obconnect, of which PayPoint recently became majority owner.
Growing number of use cases
The HSF – which was launched in October 2021 and sees the Department for Work & Pensions (DWP) channelling the funds via local authorities – is ‘designed to be used to support households in the most need due to financial hardship. particularly those who may not qualify for other types of government support’, a page dedicated to the HSF on Coventry City Council’s website explains.
At a national level the government has announced annual extensions to the HSF, most recently allocating £500 million (about $636m) for this winter (according to central government guidance on the HSF most recently updated on 27 September 2024).
Sheffield City Council has used OpenPay to distribute the HSF, as well as Local Assistance Scheme (LAS) funds. Middlesbrough Council is using it to distribute the HSF and other payments, including, for example, reimbursement of daily expenses incurred by social workers.
The UK’s Department for Energy Security & Net Zero (DESNZ) also used OpenPay last year to deliver a £600 (about $764) payment to about 6,500 itinerant boaters (who held a long-term leisure licence without a home mooring from the Canal & River Trust and had not received previous government support for their energy bills).
The DESNZ payments delivered using OpenDay comprised £400 from an Energy Bills Support Scheme and £200 from an Alternative Fuel Payment scheme. As ‘continuous cruisers’ must move their boat every two weeks, they do not have a fixed address.
UK public sector 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.
Within the UK public sector, HMRC has pioneered the use of open banking. The department began using technology supplied by the fintech company Ecospend to enable the department to receive tax payments via open banking – through ‘Payment Initiation Services’ (PIS) – in 2021.
HMRC has recently deepened its engagement with open banking technology by using AIS for taxpayers to receive back any money they may be owed by the government more ‘easily and safely’. Specifically, the department is using AIS in situations where it needs to make payments back to people who pay their taxes via PAYE (Pay As You Earn – HMRC’s system to collect income tax and national insurance payments via employment). HMRC is specifically using AIS to access a customer’s bank account information and payment details (with the customer’s consent) to make ‘P800 repayments’: a P800 is a form used by HMRC to let individuals know when they have paid an incorrect amount of tax.
Global Government Fintech reported a couple of months ago that the department has decided to use AIS for reasons including that feedback and research had showed that some people owed money back via the P800 process – who are employees and therefore often do not need to deal directly with HMRC except to receive repayments, which may only arise occasionally – could find the existing ‘Government Gateway’ / ‘Personal Tax Account’ service cumbersome or forget their log-in details.
Hertfordshire-headquartered PayPoint made a minority investment in obconnect in July 2022. On 1 August this year it announced a further £10.5m (about $13.4m) investment in the company (subject to regulatory approval), which it described as an ‘early-stage technology platform’, upping its stake to 59.3 per cent. It said the ‘investment and partnership’ with obconnect had ‘enabled PayPoint to leverage this technology platform and range of capabilities, offering open banking services to both new and existing clients.’