Faster Payments Service

Faster Payments logo

Faster Payments Service (FPS) is a UK banking initiative to reduce payment times between different banks' customer accounts from the three working days that transfers take using the long-established BACS system, to typically a few hours. CHAPS, which preceded FPS, 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 that depend on 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]

Nine banks and one building society, accounting for about 95 percent of payments traffic, initially committed to use the service; as of May 2015 there continued to be ten members.^[3] For smaller organisations such as building societies and savings institutions, a deposit-only service is available through agency arrangements with a member. 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 2010, was there any sign that this would change.

FPS was officially launched on 27 May 2008^[7] (though testing during the previous week allowed users to process very small-value (1p) transactions as "faster payments")^[8] for non-scheduled, "immediate" payments (about 5 percent of traffic) only,^[9] 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 ^[10] was made available through APACS shortly ahead of launch, which shows whether a specific sort code is able to receive Faster Payments.

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 that legislation would be introduced, if necessary, to open payment systems to increased competition.^[11] 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^[12] 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;^[13] 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 .^[14]

Agreement

In May 2005 the Task Force announced agreement had been reached to reduce clearing times for phone, Internet and standing order payments .^[15] 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 ^[16] 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^[17] (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

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 (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).

Alliance & Leicester merged their membership into Santander UK in February 2011, Bank of Scotland merged their membership into Lloyds TSB in September 2011 and Northern Rock resigned from membership in October 2011. The ten remaining members became the initial shareholders of Faster Payments Scheme Limited in November 2011.

In December 2016, Metro Bank joined the system, the first High Street bank to do so since its inception.^[18]

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.^[19] 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."^[20]

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.^[21] 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.^[22]

References

External links

• Faster Payments Sort Code Checker
• VocaLink website