Faster Payments Service (FPS) is a UK banking initiative to reduce payment times between different banks' customer accounts from three working days using the long-established BACS system, to near real time. CHAPS already provides 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 payments of smaller values (the actual limits depend on the individual banks, with some allowing individual Faster Payments up to the value of £20,000 and £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 institutions could join later as full members (though as of late 2010 none have). For smaller organisations such as building societies and savings institutions, a deposit-only service is available through agency arrangements with a member. There had been few announcements regarding charges for Faster Payments. It was expected to be around £1-£5 [1][2][3] for immediate payments by business users. No retail bank currently charges personal customers, nor is there currently[update] any sign this will change.
FPS was officially launched on the 27 May 2008[4] (though testing the previous week allowed users to process very small value (1p) transactions as 'faster payments')[5] for non-scheduled, 'immediate' payments (about 5 percent of traffic) only,[6] 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 [7] was made available by APACS shortly ahead of launch, which shows whether a specific sort code is able to receive Faster Payments.
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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, while 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].
In May 2005 the Task Force announced agreement had been reached to reduce clearing times for 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 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.
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 orders and 73 percent of all single payments. [19]
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.
The original founding members of the new service were: Abbey (now Santander UK), Alliance and Leicester (now part of Santander UK), 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).
Information from APACS on the current availability of Faster Payments is maintained at their webpage: "Which banks can send Faster Payments and what is my bank's value limit?". http://www.ukpayments.org.uk/faster_payments_service/value_limits/. This information remains indicative, however, and occasional interruptions to users of the service have occurred.
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.
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."[21]
Faster Payments is designed to support one-time payments, standing orders, corporate bulk payments, and return payments[22]. 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[23]. After six months volume had approached four million transactions[24]; in March 2009, after nine months, five million transactions and £1bn[25]. The system, designed by VocaLink with the backing of APACS, comprises networks of member institutions (banks) surrounding the core central system. The central system is designed to handle the actual message switching in near real time, 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.