A Payment Service for the 21st Century
At the end of May, the payments industry began to rollout the Faster Payments Service (FPS) for Internet, phone and standing order payments. The delivery of the central infrastructure was one of the biggest developments in payment systems in the last 20 years.
For the first time, it allows customers to make phone and Internet same-day payments on any day and at any time, enabling them to be processed within a few hours rather than three days. It has huge potential benefits for UK businesses and consumers, but it will take some time before the full benefits can be reaped as the service is being rolled out gradually to ensure that it runs smoothly, securely and with complete reliability.
The 13 founding member banks started to roll the Faster Payments Service out across their customer accounts from 27 May. As part of the phased rollout, some banks set limits on the value of payments that can initially be sent and standing orders have only started to be processed through the new service since 6 June.
In May 2005, the Payment Systems Task Force, chaired by the Office of Fair Trading, and the banking industry announced an agreement to reduce clearing times on phone, Internet and standing order payments. The initial agreement was to provide a system that would enable payments to clear in half a day. However, the industry has gone a step further, developing a service that allows the vast majority of payments to go through in a couple of hours.
APACS, the UK payments association, was responsible for the overall delivery of the new service and worked closely with member financial institutions and VocaLink, who provided the central infrastructure, to deliver these payments.
The maximum limit placed on the value of each payment sent through the service for Internet and phone payments is £10,000. However, some banks have set limits lower than this initially.
There are some basic things consumers and businesses alike need to remember if they want to make a faster payment. Firstly, they will need to check that both their own bank and the bank or bill provider they want to send to, or receive from, have upgraded their systems.
Secondly, if they are sending a payment they will need to check that the value is within the limit of their bank. Thirdly, if they are using the new service they will need to ensure that the correct name, sort code and bank account are provided, as Faster Payments are irrevocable. This means accuracy is vital. To help customers overcome this hurdle a tool has been developed – a checker which will allow customers to find out if the sort code they are sending a payment to is enabled to accept faster payments (www.canipayfaster.co.uk).
For corporates, a future stage of the rollout of the FPS may enable businesses that make large volumes of payments, for example those paying a large number of employee expenses, to submit files of payments directly into the system in much the same way as they currently do through Bacs. Some companies, such as credit card issuers, may in the future connect directly to the FPS, so that they can easily receive information on credit card bill repayments, rather than waiting for the bank to send that information.
Although the rollout will be gradual, it is clear that Faster Payments could fundamentally change the payments landscape in the UK. In the long term, it is likely that Faster Payments will fuel the growth in remote banking. All in all, it is forecast that over the next few years Faster Payments will help to push volumes of interbank online, phone and standing order payments from the 2007 figure of 472 million to 622 million in 2017.
In 2007, over 21 million UK consumers banked online and over 15 million used phone banking. Of those who bank online or over the phone, 82% use the service to pay bills or make other payments and 63% set up standing orders or direct debits.
The Internet is also popular for setting up payments to be sent at a future date. The attraction of managing finances from home or work is likely to increase with a service that allows these payments to be made – end-to-end – outside of bank opening hours. Faster Payments also has the potential to provide a platform for a mobile payment service in the future, where mobile phones are used to initiate payments.
The new service will run alongside existing automated payment services such as Bacs and CHAPS. The extent to which Faster Payments will replace these as the option for payments under the upper limit remains to be seen, but it is not only the automated payments landscape that will be potentially impacted. Cheque use has more than halved in the last decade, with personal and business account customers increasingly choosing alternative payment methods that are quicker and easier. As Faster Payments rolls out customers may increasingly opt to use it for payments that are traditionally made using a cheque; for one-off payments to friends or bill providers, for children’s school trips and payment for business services like those of a plumber or window cleaner. Many of these payments may migrate to the new service over time.
Our lives are busier than ever before and our payment needs are also changing. With the launch of the FPS, we are working to support the next generation of payments.