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HMRC embraces Open Banking for easier, safer tax payments

Gabi James Gabi James - 3rd Feb, 2021

Today we saw a great indicator of just how important and promising Open Banking is: HMRC has awarded a huge £3 million contract to Ecospend.

In their new partnership, Ecospend and HMRC will utilise Open Banking technology to drastically improve the experience of paying a tax bill. The new system will affect millions across the UK and promises to make tax payments quicker, easier, and more secure.

What is Open Banking?

In case you didn't know...

Open Banking is a new standard that allows consumers to securely share their own financial information with regulated third-party service providers. This includes a new way to make payments, where the payment itself can be initiated by the recipient's website/app but authorised via the payer's own mobile / online banking service.

Read more: Open Banking for dummies


Why did HMRC opt for Open Banking?

Here at Wonderful Payments, we don't buy into the old adage that if it ain't broke it ain't worth fixing. We think that if a system can be improved it should be. And that seems to be HMRC's motivation in embracing Open Banking to improve the experience of paying tax.

To really understand why Open Banking does offer an improvement, let's think about how the old system works.

Paying your tax bill without Open Banking 😕

"Currently, HMRC’s bank transfer journey is not integrated with its online services. This means that taxpayers must open their own banking software and manually set up a bank transfer payment." - Ecospend

While this traditional system is fully functional, it has some serious pitfalls:

  1. It poses the risk that people enter the wrong reference and their payment is properly recorded.
  2. People might input the recipient's bank account details incorrectly, and pay the wrong account altogether.
  3. There is a risk of fraud, with unauthorised parties posing as HMRC to have funds transferred to them.
  4. The system is long-winded and inconvenient for taxpayers.

New, Open Banking powered tax returns ✨

Let's contrast the current system with the new one...

  1. The correct HMRC account details and payment reference will be autofilled; removing the risk of human error (and money ending up in the wrong place).
  2. Taxpayers' payments will be sent directly from their own bank account to the correct HMRC account using the taxpayer's own online / mobile banking security.

As you can see, this addresses the drawbacks in the current system. The fact that the details are ready and waiting for taxpayers to authorise the transfer means there'll be no more errors in reference or account numbers. It also means the risk of fraud is massively reduced. By not having a system that requires payers to share card or bank details at all, you minimise the potential for these to be given to the wrong parties. The nature of Open Banking means that payments can only be made to organisations regulated by the FCA, making it more difficult for criminals scam members of the public.

Of course, it also makes the whole process much less tiresome - which is always a plus when filing taxes!

As well as making the most of Open Banking's payment possibilities, HMRC also antiquities using its Account Information Services. This will allow HMRC to view payers' financial data (with the payers' consent, of course!). That will mean HMRC can deliver 'enhanced and tailored financial services'.

What are the broader implications?

Because Open Banking is a relatively new system, it's natural that some people feel hesitant to immediately adopt it. After all, finances are a sensitive matter. Privacy and security are crucial, so we often fall back to tried and tested.

However, HMRCs adoption of Open Banking is a great example of how revolutionary the technology can and will be in all kinds of financial fields. It will also help spread adoption and awareness by showing that Open Banking is a system to be trusted as a universal way to simply and securely transfer funds directly between bank accounts.

Open Banking use cases will continue to spring up in all kinds of wonderful ways over the course of 2021. We look forward to seeing what other processes can be refined and services provided with innovative implementation of Open Banking!

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