Faster Payments Service

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Faster Payments Service (FPS) is a United Kingdom banking initiative to reduce payment times between different banks' customer accounts to typically a few seconds, from the three working days that transfers usually take using the long-established BACS system. CHAPS, which was introduced in 1984, provides a limited faster-than-BACS service (by close of business that day) for "high value" transactions, while FPS is focused on the much larger number of smaller payments, subject to limits set by the individual banks, with some allowing Faster Payments of up to £250,000. [1] Transfer time, while expected to be short, is not guaranteed, nor is it guaranteed that the receiving institution will immediately credit the payee's account. [2]

Contents

Nine banks and one building society, accounting for about 95% of payments traffic, initially committed to use the service; as of May 2018 there were 21 direct participants. [3] For smaller organisations such as building societies and savings institutions, the service is available through agency arrangements with a direct participant. Initially, there were few announcements regarding charges for Faster Payments; it had been expected to be around £1–£5 [4] [5] [6] for immediate payments by business users. No retail bank currently charges personal customers for this service (with non-guaranteed transfer time), nor, as of 2018, was there any sign that this would change.

FPS was officially launched on 27 May 2008 [7] [8] (though testing during the previous week allowed users to process very small-value (1p) transactions as "faster payments") [9] for non-scheduled, "immediate" payments (about 5% of traffic) only, [10] with access for future-dated payments and standing orders from 6 June. In practice, the service was severely limited by the approach of individual member banks to its adoption (see Implementation). A general online sort code checker [11] was made available through APACS shortly ahead of launch, which shows whether a specific sort code is able to receive Faster Payments.

On 1 May 2018 the Bank of England announced that the New Payment System Operator (NPSO) had taken over responsibility for the operation of the Bacs and Faster Payments systems [12] and Faster Payments announced that it had become a subsidiary company of the NPSO. [13]

Background

In November 1998 the UK Treasury commissioned the Cruickshank Report, a review 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, Chancellor Gordon Brown announced that legislation would be introduced, if necessary, to open payment systems to increased competition. [14] Initially the banking industry was consulted by the government on further steps and progress in payments services monitored by the Competition Commission and the Office of Fair Trading (OFT).

By May 2003, while the OFT was able to report modest improvements, such as changes to BACS and the governance of APACS, some competition concerns remained [15] 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 [16] – 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. [17]

Agreement

In May 2005 the task force announced that agreement had been reached to reduce clearing times for phone, Internet and standing order payments. [18] 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 Payment Systems Task Force accepted an APACS recommendation for a still more ambitious target on payment times [19] 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 November 2007. This stage also marked formal dissolution of the Task Force and reformation as a permanent body, the Payments Industry Association [20] (later Payments Council), responsible for governance of all payments systems, including Faster Payments.

Organisation

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.) Towards the end of 2011, Faster Payments Scheme Limited (a member-based organisation) was set up to separate out the day-to-day operations and management of the service from CHAPS.

VocaLink continues to provide and operate the infrastructure for the service.

Participating members

The original founding members of the new service were Abbey (now Santander UK), Alliance & Leicester (now part of Santander UK), Barclays, Citi, Clydesdale Bank (including Yorkshire Bank), The Co-operative Bank, HSBC, Lloyds TSB (now Lloyds Bank and TSB), Nationwide Building Society, Northern Bank (now Danske Bank), Northern Rock, Bank of Scotland (including Halifax) and the then Royal Bank of Scotland Group (including NatWest, RBS and Ulster Bank).[ citation needed ]

Abbey and Alliance & Leicester merged their membership under Santander UK in February 2011; Bank of Scotland merged their membership into Lloyds Banking Group in September 2011 and Northern Rock resigned from membership in October 2011. The remaining ten members became the initial shareholders of Faster Payments Scheme Limited in November 2011.[ citation needed ]

In December 2016, Metro Bank joined the system, the first High Street bank to do so since its inception. [21]

Later, in January 2017, Starling Bank joined the service as a direct partner, the first digital-only bank in the system's history. [22]

In February 2018, Ebury became the first to join as a directly connected non settling participant, DCNSp. [23]

In April 2018, TransferWise joined Faster Payments as the first non-bank payment service provider to be a directly connected settling participant, [24] after being the first of its kind to gain access to Bank of England's Real-Time Gross Settlement (RTGS) system. [25]

Implementation

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. [26] This will ultimately enable businesses to submit large numbers of payments directly into the Faster Payments Service.

From 6 September 2010, the value limit for all payment types was raised to £100,000. However, "individual banks and building societies will continue to set their own value limits for their corporate and consumer customers." [27]

On 1 January 2012, Regulation 70 in the Payment Services Regulations 2009 went into effect, requiring that all standing orders be settled within a day of submission. [28] This shifted about five million payments from the BACS system to FPS, putting monthly volumes above 20 million. FPS handled 967.6 million transactions in 2013, up 19% from the prior year. The total value of transactions in 2013 was £771.4 billion, up 25% over 2012. [29]

Related Research Articles

Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the transfer of money or securities takes place from one bank to any other bank on a "real-time" and on a "gross" basis. Settlement in "real time" means a payment transaction is not subjected to any waiting period, with transactions being settled as soon as they are processed. "Gross settlement" means the transaction is settled on a one-to-one basis, without bundling or netting with any other transaction. "Settlement" means that once processed, payments are final and irrevocable.

BACS

Bacs Payment Schemes Limited (Bacs), previously known as Bankers' Automated Clearing System, is the organisation with responsibility for the schemes behind the clearing and settlement of UK automated payment methods Direct Debit and Bacs Direct Credit, as well as the provision of managed services for third parties. Bacs became a subsidiary of Pay.UK on 1 May 2018, and as a result of this, overall responsibility for the operations of Direct Debit, Bacs Direct Credit, the Current Account Switch Service, Cash ISA Transfer Service and the Industry Sort Code Directory was handed over to Pay.UK.

The UK Payments Administration Ltd (UKPA) is a United Kingdom service company that provides people, facilities and expertise to the UK payments industry.

The Clearing House Automated Payment System (CHAPS) is real-time gross settlement payment system used for sterling transactions in the United Kingdom.

A Direct Debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person's bank account. Formally, the person who directly draws the funds instructs his or her bank to collect an amount directly from another's bank account designated by the payer and pay those funds into a bank account designated by the payee. Before the payer's banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). After the authorities are set up, the direct debit transactions are usually processed electronically.

Sort codes are the domestic bank codes used to route money transfers between financial institutions in the United Kingdom, and historically in the Republic of Ireland. They are six-digit hierarchical numerical addresses that specify clearing banks, clearing systems, regions, large financial institutions, groups of financial institutions and ultimately resolve to individual branches. In the UK they continue to be used to route transactions domestically within clearance organisations and to identify accounts, while in the Republic of Ireland they have been deprecated and replaced by the SEPA systems and infrastructure.

The Clearing House Interbank Payments System (CHIPS) is a United States private clearing house for large-value transactions. By 2015, it was settling well over US$1.5 trillion a day in around 250,000 interbank payments in cross border and domestic transactions. Together with the Fedwire Funds Service, CHIPS forms the primary U.S. network for large-value domestic and international USD payments where it has a market share of around 96%. CHIPS transfers are governed by Article 4A of Uniform Commercial Code.

Cheque and Credit Clearing Company

The Cheque and Credit Clearing Company Limited (C&CCC) is a UK membership-based industry body whose 11 members are the UK clearing banks. The company has managed the cheque clearing system in England and Wales since 1985, in all of Great Britain since 1996 when it took over responsibility for managing the Scottish cheque clearing as well, and in the whole of the United Kingdom since the introduction of the Image Clearing System in 2019.

LINK is a shared interbank network of cash machines operating in the United Kingdom.

ToDDaSO was an electronic payments service in the UK for the transfer of retail customer payment arrangements between different bank accounts in UK banks. ToDDaSO is an acronym that stands for Transfer of Direct Debits and Standing Orders.

Payments Council organization

The Payments Council was an organisation of financial institutions in the United Kingdom, which set strategy for UK payment mechanisms from 2007 until 2015.

The Industry Sorting Code Directory (ISCD) is the definitive list of bank branches and sub branches in the United Kingdom. The directory is maintained by VocaLink on behalf of UK Payments Administration.

Direct Corporate Access (DCA) is part of the Faster Payments Service which provides a same day clearing payment service to UK member banks. Direct Corporate Access (DCA) will provide Banks' business customers with direct access to the Faster Payments Service (FPS) clearing service in a very similar way that Bacstel-IP provides access to BACS.

Santander UK plc is a British bank, wholly owned by the Spanish Santander Group. Santander UK plc manages its affairs autonomously, with its own local management team, responsible solely for its performance.

Financial Conduct Authority

The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The FCA regulates financial firms providing services to consumers and maintains the integrity of the financial markets in the United Kingdom.

Vocalink is a payment systems company headquartered in the United Kingdom, created in 2007 from the merger between Voca and LINK. It designs, builds and operates the UK payments infrastructure, which underpins the provision of the Bacs payment system and the UK ATM LINK switching platform covering 65,000 ATMs and the UK Faster Payments systems.

EBA Clearing is a provider of pan-European payment infrastructure wholly owned by shareholders that consist of major European banks.

Atom Bank

Atom Bank plc is based in Durham, North East England. Atom Bank is the UK's first bank built for smartphone or tablet, without any branches. In turn, this means that Atom are able to pass on the benefits of their low-cost model in respect of a better deal for their customers, and was the first digital only challenger bank to be granted a full UK regulatory licence.

Faster Payment System real-time gross settlement payment system in Hong Kong

Faster Payment System is a real-time gross settlement payment system in Hong Kong that connects traditional banks and electronic payment and digital wallet operators. Users are able to perform instant money transfer or make payment to merchants by using the recipient's phone number, e-mail or QR code that contains the user's numeric identifier. Using the "traditional way" of full name and account number to make interbank transfer is also allowed.

An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low value payments, between participating financial institutions. It may support both credit transfers and direct debits. The ACH system is designed to process batches of payments containing numerous transactions and charges fees low enough to encourage its use for low value payments.

References

  1. ↑ FPS limit increases
  2. ↑ Barclays Bank, Faster Payments FAQ
  3. ↑ Faster Payments: Directly Connected Participants
  4. ↑ Albany Software Archived 21 April 2008 at the Wayback Machine February 2007
  5. ↑ Bank of Scotland Corporate Tariff About your account and our charges Archived 12 June 2009 at the Wayback Machine
  6. ↑ Coutts Commercial tariff Faster Payments – Commercial clients
  7. ↑ "Celebrating 10 amazing years – 24/7 since 2008". Faster Payments. 25 May 2018. Retrieved 5 August 2020.
  8. ↑ "Banking industry update on new Faster Payments Service". apacs.org.uk. 2 March 2008. Archived from the original on 2 March 2008. Retrieved 5 August 2020.
  9. ↑ Money Saving Expert. "HSBC Fast payment is right here right now" . Retrieved 27 May 2008.
  10. ↑ APACS, Press release - phased rollout for new faster payments 28 April 2008
  11. ↑ "Sort Code Checker". Faster Payments. Retrieved 6 May 2014.
  12. ↑ "Consolidation of three UK Payment System Operators". Bank of England. Retrieved 8 October 2018.
  13. ↑ "New Payment System Operator takes on responsibility for the Bacs and Faster Payments systems". Faster Payments. Retrieved 8 October 2018.
  14. ↑ Banking Liaison Group, Cruickshank banking review Archived 19 October 2008 at the Wayback Machine
  15. ↑ OFT, Press release PN 66/03 - market study on payment systems Archived 19 October 2008 at the Wayback Machine 22 May 2003
  16. ↑ HM Treasury, Pre-Budget Report - para. 3.16 December, 2003
  17. ↑ OFT, Press release PN 43/04 - payments systems task force announced Archived 19 October 2008 at the Wayback Machine 15 March 2004
  18. ↑ OFT, Press release PN 94/05 - faster payments service announced Archived 3 May 2008 at the Wayback Machine 24 May 2005
  19. ↑ APACS, Press release - details of faster payment services 16 December 2005
  20. ↑ OFT, Press release PN 159/06 - new governance body for payment systems Archived 12 October 2008 at the Wayback Machine 14 November 2006
  21. ↑ Press Release, Metro Bank becomes first high street bank to join Faster Payments Scheme since its launch 6 December 2016
  22. ↑ PaymentsEye article, Starling Bank becomes first digital-only bank to join Faster Payments as direct partner 23 January 2017
  23. ↑ "New way of accessing Faster Payments spreads true real-time 24/7 payments wider than ever | Faster Payments". www.fasterpayments.org.uk. Retrieved 25 January 2019.
  24. ↑ Reuters, Start-up TransferWise breaks into Britain's faster payments scheme 18 April 2018
  25. ↑ Financial Times, TransferWise becomes first non-bank to join BoE payment system 18 April 2018
  26. ↑ PR Newswire, First Payment via UK Faster Payments Service Direct Corporate Access Archived 1 October 2009 at the Wayback Machine 23 July 2009
  27. ↑ UK Payments Administration, Faster Payments Scheme Boosts Banks’ Ability to Provide a Competitive Service to Customers Archived 13 September 2010 at the Wayback Machine 10 September 2010
  28. ↑ "The Payment Services Regulations 2009". The National Archives. Retrieved 6 May 2014.
  29. ↑ "Annual Summary of Payment Clearing Statistics 2013" (PDF). The Payments Council. Archived from the original (PDF) on 7 May 2014. Retrieved 6 May 2014.
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