Faster Payments Service

Faster Payments Service (FPS) is a banking initiative in the United Kingdom to reduce the time taken for 'low value' payments made person-to-person and business-to-business - which normally take three working days using BACS - to near real time, essentially as if the two accounts were in the same bank. The CHAPS service already exists to provide faster payments for high value transactions (by close of business that day) but FPS is focused on lower value transactions for consumers and small businesses.

Thirteen banks and building societies, accounting for 97% of UK payments traffic, are committed to use the new service. Other financial institutions will be able to join later, either as full members or to access the system through agency arrangements with a member – just as they do with other payment systems.

The new infrastructure for Faster Payments was launched on the 27 May 2008 [APACS, [http://www.apacs.org.uk/08_02_27.html Banking industry update on new Faster Payments Service] February, 2008] as banks began to roll out the service to customers, although some users reported they were able to process very small value (1p) transactions as faster payments during the previous week as banks tested the system in a live environment. [cite web|url=http://forums.moneysavingexpert.com/showthread.html?t=925769|title=HSBC Fast payment is right here right now|last=Money Saving Expert|accessdate=2008-05-27] Initially only non-scheduled payments (representing about 5% of the final number) were to be allowed to go through the new service. [APACS, [http://www.apacs.org.uk/08_04_28.html Press release - phased rollout for new faster payments] 28 April 2008] Thereafter, from 6 June 2008, full functionality was to be established for future-dated and standing order payments. In practice, the new service continues to be restricted by individual member banks to their customers and will run alongside the existing payments system for a number of months. A [http://www.apacs.org.uk/sortcodechecker Sort Code Checker] tool was released by APACS, shortly ahead of the launch, which shows whether a specific sort code has been activated to receive Faster Payments.

There have been no official announcements regarding the cost per transaction of FPS. However, it is expected to be around £1 [Albany Software [http://www.albany.co.uk/news/news_faster_payments.htm] ] – though this is likely to apply only to businesses seeking to migrate from BACS and seems unlikely any charge will apply to individual customers.

Background

The development of a Faster Payments Service infrastructure was itself a complex project involving significant investment by the UK payments industry.

In November 1998 the UK Treasury commissioned a review (The "Cruickshank Report") of competition within the UK banking industry, which reported on 20 March 2000. Among its recommendations was primary legislation to establish an independent payment systems commission (PayCom) in place of existing interbank arrangements. The following day, the Chancellor, Gordon Brown, announced that legislation would be introduced to open payment systems to increased competition. [Banking Liaison Group, [http://www.bankexperts.co.uk/cruickshank/payment-systems.htm Cruickshank banking review] ] In the wake of the Report, the banking industry was consulted by government and its progress monitored both by the Competition Commission and the Office of Fair Trading (OFT).

By May 2003, whilst the OFT was able to report some improvements in the area of payments systems (such as changes to BACS - since rebranded as 'Bacs'- and governance of APACS), a number of competition concerns remained OFT, [http://www.oft.gov.uk/news/press/2003/pn_66-03 Press release PN 66/03 - market study on payment systems] 22 May 2003. In December 2003, in place of the Report's proposed legislative approach, the Treasury announced instead that the OFT would take on: "an enhanced role in relation to payment systems, for a period of four years" to resolve outstanding competition problems "in advance of any legislation"HM Treasury, [http://www.hm-treasury.gov.uk/media/D/1/PBR03completerep%5B1%5D.pdf Pre-Buget Report - para. 3.16] December, 2003 - essentially self-regulation. In March 2004 the OFT announced the formation of a joint government-industry body - the "Payments Systems Task Force" under its chairmanshipOFT, [http://www.oft.gov.uk/news/press/2004/43-04 Press release PN 43/04 - payments systems task force announced] 15 March 2004.

By May 2005 the Task Force announced an agreement had been reached to reduce clearing times on phone, internet and standing order paymentsOFT, [http://www.oft.gov.uk/news/press/2005/94-05 Press release PN 94/05 - faster payments service announced] 24 May 2005. This committed the payments services industry to develop a system that would clear electronic payments in no more than half a day - the so-called 'ELLE' model - resulting in payments being received the same day if made sufficiently early. Implementation groups where then given six months to bring forward detailed proposals.

In October 2005, the contract to provide the central infrastructure for this new service was awarded by APACS to Immediate Payments Limited, a joint venture company set up by Voca and LINK who have since merged to form VocaLink.

In December 2005, the Task Force accepted a recommendation of APACS to go for a still more ambitious target on payment timesAPACS, [http://www.apacs.org.uk/media_centre/press/05_12_16.html Press release - details of faster payment services] 16 December 2005; one that would ensure access to funds within a couple of hours of any payment being made and also permit payments to be initiated by bank customers 24 hours a day, 7 days a week - to be introduced by the end of (November) 2007. This stage also marked the formal dissolution of the Payments System Taskforce. Thereafter a permanent body was established, the "Payments Industry Association"OFT, [http://oft.gov.uk/news/press/2006/159-06 Press release PN 159/06 - new governance body for payment systems] 14 November 2006, responsible for governance of all payments systems - including Faster Payments, which took over the outstanding work of the Taskforce.

Delays

In July 2007, APACS announced a delay in the introduction of Faster Payments to some time beyond November 2007APACS, [http://www.apacs.org.uk/media_centre/press/07_12_07.html Press release - banking industry update on faster payments project] 12 July 2007 due to "complex and time-consuming" testing requirements. Thereafter, a new target of May 2008 was establishedAPACS, [http://www.apacs.org.uk/media_centre/press/08_14_07.html Press release - revised timescale for faster payments service] 14 August 2007, with the precise date being confirmed subsequently. The confirmation made clear, for the first time, that Faster Payments would not be introduced 'wholesale' and the service would only be made available to participating banks in stages. In turn, individual banks would decide when they would first make the service available generally to their customers and what, if any, additional restrictions they would apply themselves.

Organisation of FPS

APACS is responsible for the development and delivery of the Faster Payments Service, but once launched in May 2008 it will transfer day-to-day operations and management of the service to the CHAPS Clearing Company. (CHAPS Clearing Co. is a member-based organisation responsible for the CHAPS sterling high-value same-day payment system.)

The design of Faster Payments has been a joint project between Immediate Payments Ltd. (IPL), APACS and the thirteen founder member banks, based on a commitment made to the OFT Payment Systems Task Force in 2005. IPL, a VocaLink company, is supplying the central network for the Faster Payments Service.

Participating banks

The founding members signed up to introducing this new service from May 2008 are:

Payments through standing order and to credit cards also have different roll-out plans for each provider. Following the initial launch of the central infrastructure, work is planned to provide a Direct Corporate Access Channel. This will ultimately enable businesses to submit large numbers of payments directly into the Faster Payments Service.

Technology

Faster Payments will support one-time payments, standing orders, corporate bulk payments, and return payments. The service is expected to handle a peak volume in excess of ten million transactions per day. After the first three months of operation peak volumes of over 1 million daily transactions had been reachedeasier.com, [http://www.easier.com/view/Finance/Banking/News/article-203139.html Faster Payments passed one million transactions a day mark ] 12 September 2008. The system is being designed by VocaLink with the backing of APACS and comprises networks of member institutions (banks) surrounding the core central system. The central system will handle the actual message switching in near real time, as well as manage the settlement of accounts at the Bank of England, and generate reports. The physical network will be handled by VocaLink and the system will be managed by the CHAPS Clearing Company.

References

External links

* [http://www.canipayfaster.com/ Faster Payments; key facts, example and Sort Code Checker]
* [http://www.apacs.org.uk/payments_industry/faster_payments_service.html Faster Payments information on APACS website]
* [http://www.apacs.org.uk/sortcodechecker/ Faster Payments Sort Code Checker]
* [http://www.immediate-payments.co.uk/ IPL Website]
* [http://www.vocalink.com/ VocaLink website]
* [http://www.fastpayments.co.uk/ FastPayments website] (includes whitepaper)
* [http://www.oft.gov.uk/News/Press+releases/2005/94-05.htm Office of Fair Trading press release]
* [http://www.barclays.co.uk/fps Barclays Bank Faster Payments website]