As home to some of the biggest names in banking, trading, payments and crypto, the UK has a well-earned reputation as a global leader in FinTech. Recognising the strength of the sector and potential for significant future growth, the UK government has taken substantial, proactive steps to support the domestic FinTech ecosystem. For example, the recently founded Centre for Finance, Innovation, and Technology (CFIT) is designed to bolster the nation's thriving FinTech sector. Stemming from recommendations in the independent review of UK FinTech led by Sir Ron Kalifa, this initiative seeks to foster financial innovation by bringing experts together and establishing innovation hubs. The Kalifa Review also suggested measures such as fast-track visas for FinTech scale-ups, a digital scale box to nurture partnerships between incumbents and FinTech firms, and an enhanced listing environment to incentivise FinTech companies to IPO on the London Stock Exchange. Initiatives such as these continue to be a critical tool in strengthening the UK FinTech sector, and the UK government has demonstrated itself as ahead of the curve in this regard.
The UK government is a great champion of FinTech, but it is a less established user of it. While the excitement around supporting FinTech in the private sector has been widespread, the government risks missing a huge opportunity in not directing the same enthusiasm towards bringing FinTech into the public sector itself.
In this blog we explore the emerging use cases for FinTech within government, outline a holistic definition of the concept, and provide recommendations for how the UK can mirror its leadership in private sector FinTech to establish itself as the global leader in FinTech for Gov.
Some examples of FinTech for Gov
The potential for the UK government to adopt FinTech into its own financial processes is vast, given its status as the largest payer and payee in the country. For instance, the Department for Work and Pensions processes an average of 2.5 million payments daily, covering more than £150 billion per year. By capitalising on its significant financial influence, the government can kickstart a virtuous cycle where it drives the development and adoption of innovative FinTech solutions while improving its service delivery.
HMRC's collaboration with open-banking FinTech Ecospend is a great example of what FinTech for Gov can look like. Marking a potential first in global government usage of open banking, Ecospend secured a £3 million contract to facilitate direct tax payments from users' bank accounts to HMRC. The pay-by-account feature, which utilises APIs to pre-fill account information, has been well-received for reducing human error. Additionally, the partnership allowed HMRC to bypass £500,000 in interchange fees. As for Ecospend, the contract win transformed the company from operating in stealth mode to being acquired by Trustly, a prominent Swedish FinTech firm.
In another impressive case, the Department for Work and Pensions partnered with digital voucher platform i-movo and cloud-based bank ClearBank to introduce the Payment Exception Service (PES) in response to the termination of paper-based vouchers and Post Office card accounts. PES enables benefit and pension recipients to choose their preferred method for receiving cash payment vouchers, which can be withdrawn at retail outlets and Post Office branches. By integrating with ClearBank's API, i-movo promptly issues secure digital vouchers through delivery methods like SMS, unique barcodes, email-attached PDFs, or reusable magnetic stripe plastic cards, leveraging BACS and Faster Payments. PES has expanded access to benefits for unbanked recipients, with 29,000 local and convenience retailers providing seven-day-a-week accessibility. Retailers also benefit from cash recycling, and PES has generated additional sales.
A unified concept of FinTech for Gov
These kinds of initial use cases are exciting, but FinTech for Gov is hardly an established concept. The sector does not have a clear taxonomy or definition, there is no index of HMG-wide use cases, and there is no strategy for joining up initial pockets of good practices.
With this in mind, we have conducted an in-depth analysis of the government's current approach, aiming to identify opportunities for improvement that could inform the development of a coordinated strategy. Our review encompassed contracts, tenders, prior information notices, annual reports and strategy documents, enabling us to uncover a variety of potential use cases and available case studies related to government revenue, expenditure and oversight. We have also assessed the ecosystem of startups, innovators, universities and research institutions developing FinTech for Gov solutions.
Our analysis revealed that the majority of FinTech adoption is driven by short or medium-term agendas, potentially causing public sector entities to miss opportunities for systemic financial innovation. For example, the Intellectual Property Office's (IPO) three-year One IPO Transformation Programme is introducing open banking payment capabilities alongside upgraded digital services. Similarly, NS&I is adopting modern payments infrastructure as part of its four-year Rainbow Transformation Programme. The launch of TFL’s world leading open-loop payments infrastructure - developed in partnership with Mastercard - was partly driven by a requirement to enable tourists coming in for the Olympic games to more conveniently pay for their transport.
A more effective approach is demonstrated by public entities that integrate FinTech within their organisational structures, adopting a long-term strategy that yields the most use cases per entity. A prime example is the Bank of England's Fintech Hub, which explores FinTech applications to enhance the Bank's capabilities. This approach involves proofs of concept with FinTech firms, such as Consult Hyperion's development of a Point of Sale CBDC Prototype, yielding at least 17 such PoCs to date. However, only a few public entities - such as HMRC and DWP - have implemented similar programmes.
Taken together, we have created a visualised FinTech for Gov map, which aims to provide a more joined-up approach for thinking about the sector. This includes a sector taxonomy according to the Government's main financial requirements ‘Revenue’ (money coming in) ‘Expenditure’ (money going out), and ‘Oversight’ (managing the financial sector). We have segmented FinTech for Gov use cases against these different areas, and have linked to ongoing or recent government innovation projects. Finally, for use cases where we have found relevant startups or innovators, we have included logos of partners who can help the government to deliver on the opportunity. This map is included below and a full PDF version with embedded links is available here.
Moving towards a central FinTech function
Above, we have outlined a more joined-up view of FinTech for Gov as a holistic sector. But how can the UK government move towards this kind of joined-up approach?
We think that the most important first step is to consider where similar tools and technologies in one part of government can be used in another. How can new payments technologies and approaches be used by CCS and NHS SBS in procurement, as well as by the Government Grants Management Function or departmental grants teams for grant payments? How can local authorities use disbursement management tools in the same way as DWP? How can real-time tax payments via integrations with accounting software integration also be used to automate tax relief claims for R&D?
A good start could to establish momentum behind FinTech for Gov, and to create a more joined-up approach across government could be to establish a FinTech for Gov Centre of Excellence. Mirroring similar strategies aimed at the private sector (such as the aforementioned CFIT), establishing a FinTech for Gov Centre of Excellence would be a powerful tool to provide coordinated support for this unique sub-sector. This kind of centralised FinTech for Gov function can enhance the currently fragmented landscape in three ways:
1. Raising awareness of FinTech as a valuable resource for addressing challenges among government departments or teams who have not yet considered it. This would be particularly relevant for local authorities who both face financial constraints and deliver a poor payment experience
2. For organisations already using FinTech for Gov without a long-term approach, a centralised structure can help shift their direction towards a model like the Bank of England's
3. Facilitating the execution of identified FinTech for Gov opportunities through peer learning, enabling public entities to learn from successful initiatives (such as NS&I's Help to Save programme)
This FinTech for Gov Centre of Excellence would have a distinct mandate to coordinate the government's FinTech activities and ensure that they are aligned with its strategic objectives, differentiating it from government payment service providers (such as NS&I's Government Payment Service and the Government Banking Service). It would engage in activities including:
In summary, a coordinated approach to the UK government's use of FinTech is essential for maximising its potential to improve service delivery. By creating a FinTech for Gov Centre of Excellence, the government can raise awareness of FinTech among public entities, facilitate the execution of identified FinTech for Gov opportunities, and establish strategic relationships with FinTech startups and established firms. This will ensure that the UK government stands firm as the world leader in FinTech innovation, through not only strengthening the sector as a supportive stakeholder but demonstrating the value of these emerging technologies in the most convincing way possible - using it themselves.
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