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Faster Payments Service (FPS) is a UK banking initiative to reduce payment times between different banks' customers accounts, from three working days using the existing BACS system, to near real time; essentially as if two accounts at separate banks were held within the same bank. CHAPS already provides limited faster-than-BACS service (by close of business that day) for 'high value' transactions, whilst FPS is focused on the much larger number of payments of any size up to £10,000 (£100,000 for Standing Orders).

Twelve banks and one building society, accounting for about 95 percent of payments traffic, initially committed to use the service. Other financial institutions could join later, either as full members or to access the system through agency arrangements (such as smaller building societies) with a member.

Faster Payments were officially launched on the 27 May 2008[1] (though some users reported being able to process very small value (1p) transactions as 'faster payments' the previous week)[2]. Initially only 'immediate' (non-scheduled) payments, representing about 5 percent of all payments, were enabled to go via the new service,[3] with full access for member organisations, to future-dated and standing order payments, from 6 June 2008. In practice however, the new service was barely available for several months, and has remained significantly constrained thereafter by the approach of individual member banks to adoption. A Sort Code Checker tool[4] was released by APACS shortly ahead of the launch, which shows whether a specific sort code is able to receive Faster Payments.

There have been few official announcements regarding the cost per transaction of FPS. However, it is expected to be around £1-£5 [5] [6] [7]. This currently only applies to business users and to immediate payments in particular. No retail banks yet charge individual customers using the service, nor is there currently any sign this will change.

Contents

Background

In November 1998, the UK Treasury commissioned a review (The Cruickshank Report) of competition within the UK banking sector, which reported in March 2000. Among its recommendations was primary legislation to establish an independent payment systems commission (PayCom) in place of existing, privately controlled, interbank arrangements. The following day, the Chancellor, Gordon Brown, announced legislation would be introduced, if necessary, to open payment systems to increased competition.[8] Initially the banking industry was consulted by government on further steps and progress in payments services monitored by the Competition Commission and the Office of Fair Trading (OFT).

By May 2003, whilst the OFT was able to report modest improvements, such as changes to BACS and the governance of APACS, some competition concerns remained [9] and, in December 2003, the Treasury announced 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"[10]; essentially self-regulation. In March 2004 the OFT announced the formation of a joint government-industry body - the Payments Systems Task Force under its chairmanship [11].

By May 2005, the Task Force announced agreement had been reached to reduce clearing times on phone, internet and standing order payments [12]. This committed the payments services industry to develop a system able to clear automated payments in no more than half a day - the so-called 'ELLE' model - resulting in payment being received the same day if made sufficiently early. Implementation groups were 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 an APACS recommendation for a still more ambitious target on payment times [13]; to ensure access to funds within a couple of hours of any payment being made and allowing payments to be sent 24 hours a day, 7 days a week, to be available by the end of (November) 2007. This stage also marked formal dissolution of the Task Force and reformation as a permanent body, the Payments Industry Association[14] (later Payments Council), responsible for governance of all payments systems - including Faster Payments.

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Delays

In July 2007, APACS announced a delay in the introduction of Faster Payments, beyond November,[15] due to "complex and time-consuming" testing requirements, with a new target of May 2008 later established.[16] In turn, individual bank adoption of FPS was patchy, which resulted in further delays as banks decided when to make the service available to customers and what additional restrictions they would apply. Nine months after the official launch date, the OFT reported Faster Payments were still only operating at 69 percent capacity, [17] with customers losing interest estimated between £38 and £82 million as a result.[18] By October 2009 (15 months after launch) capacity had reached 47 percent of standing order and 73 percent of all single payments. [19]

Organisation of FPS

APACS was responsible for the development and delivery of Faster Payments, but after May 2008 transferred day-to-day operations and management of the service to the CHAPS Clearing Company (a member-based organisation responsible for the CHAPS sterling high-value same-day payment system.)

The design of Faster Payments was a joint project between Immediate Payments Ltd. (IPL), APACS and the founder members, based on a commitment made to the OFT Payment Systems Task Force in 2005. IPL, a VocaLink company, supplies the central network for the service.

Participating Members

The original founding members of the new service were: Abbey, Alliance and Leicester, Barclays, Citi, Clydesdale and Yorkshire Banks (National Australia Group), Co-operative Bank, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Northern Bank (Danske Bank), Northern Rock, and Royal Bank of Scotland Group (including NatWest and Ulster Bank).

Implementation Status

Following the initial launch of the central infrastructure, work was planned to provide a Direct Corporate Access Channel and the first such payment was made in July 2009[20]. This will ultimately enable businesses to submit large numbers of payments directly into the Faster Payments Service.

For the current availability of Faster Payments through member banks, see the page "Which banks can send Faster Payments and what is my bank's value limit?". http://www.ukpayments.org.uk/faster_payments_service/value_limits/.   maintained on the APACS UK Payments Administration site[21].

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 three months of operation peak volumes of over 1 million daily transactions had been reached[22]. After six months volume had approached 4 million transactions[23]; after nine months, 5 million transactions and £1bn[24]. The system, designed by VocaLink with the backing of APACS, 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

  1. ^ APACS, Banking industry update on new Faster Payments Service February, 2008
  2. ^ Money Saving Expert. "HSBC Fast payment is right here right now". http://forums.moneysavingexpert.com/showthread.html?t=925769. Retrieved 2008-05-27.  
  3. ^ APACS, Press release - phased rollout for new faster payments 28 April 2008
  4. ^ APACS Sort Code Checker
  5. ^ Albany Software February 2007
  6. ^ Bank of Scotland Corporate Tariff About your account and our charges
  7. ^ Coutts Commercial tariff Faster Payments – Commercial clients
  8. ^ Banking Liaison Group, Cruickshank banking review
  9. ^ OFT, Press release PN 66/03 - market study on payment systems 22 May 2003
  10. ^ HM Treasury, Pre-Buget Report - para. 3.16 December, 2003
  11. ^ OFT, Press release PN 43/04 - payments systems task force announced 15 March 2004
  12. ^ OFT, Press release PN 94/05 - faster payments service announced 24 May 2005
  13. ^ APACS, Press release - details of faster payment services 16 December 2005
  14. ^ OFT, Press release PN 159/06 - new governance body for payment systems 14 November 2006
  15. ^ APACS, Press release - banking industry update on faster payments project 12 July 2007
  16. ^ APACS, Press release - revised timescale for faster payments service 14 August 2007
  17. ^ OFT, Press Release PN 34/09, Payment Systems working better for consumers but more to be done 25 March 2009
  18. ^ Slow clearing has 'lost millions', BBC news, 26 March 2009
  19. ^ Payments Council, Press release 30 novemver 2009
  20. ^ PR Newswire, First Payment via UK Faster Payments Service Direct Corporate Access 23 July 2009
  21. ^ APACS: Which banks can send Faster Payments and what is my bank's value limit
  22. ^ easier.com, Faster Payments passed one million transactions a day mark 12 September 2008
  23. ^ APACS, Press release Faster Payments Service volumes reach new peak 30 December 2008
  24. ^ slicon.com, Faster Payments beats £1bn in one day 9 March 2009

External links


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