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The UK payments association said that the new payments infrastructure for this service remains on track to be launched on 27 May and, from this date, founding banks will be gradually implementing their own plans to deliver the new service to their customers.

APACS added that this phased approach would help ensure that the service is launched smoothly, securely and with total reliability for customers. Further updates on launch plans will be made prior to 27 May.

Payments cleared within hours 

The new service will benefit customers by speeding up one-off payments made over the internet or by phone, reducing the current three-day clearing timescale to enable these payments to clear within hours, not days.

For the very first time it will also be possible to make these payments all day every day.

The service will also enable same day clearing for regular standing order payments made on bank working days, reducing the current clearing timescale of three days.

Each participating financial institution will be confirming their own plans for introducing their competitive services to their customers and explaining what this means for them. 

At present there is no need for customers to do anything or to make any changes to existing payments. Any payment that is not processed through the new service will continue to be made using the existing Bacs three-day service. 

Introductory measures 

To ensure a smooth rollout of this new service, volumes on launch day are being carefully managed.

This means on day one it is expected that only 5 per cent of members’ internet and phone payments will be processed as faster payments. 

As an additional introductory measure some financial institutions will place lower initial limits on the value of phone and internet payments that can be sent or alternatively they may choose to phase rollout across their customer accounts. 

Standing orders are scheduled to start being processed through the Faster Payments Service from 6 June. 

Over the summer the overall volumes are expected to increase to over 50 per cent of anticipated peak-day processing volumes. The development of this brand new payments infrastructure has been on an unprecedented scale.

Internet and phone payments 

APACS said that it had been a massively complex project for all involved and it is estimated that the cost across the sector could reach several hundred million pounds.

“It will deliver a level of service for UK customers second-to-none in the world,” according to APACS.

Currently internet and phone payments account for just 2 per cent of interbank automated payment volumes, but these are growing rapidly as customers increasingly turn to them instead of more traditional payment methods such as cheques.

Standing orders account for 6 per cent of interbank automated payments. The new system is being built to cater for the large volume increases projected for the future.

No room for errors

The remaining 92 per cent of interbank automated payments are 'bulk' transactions generated by organisations and businesses both large and small.

Paul Smee, APACS chief executive, said that the UK banking industry had pulled together to deliver this new payment infrastructure to a demanding timescale. He added that the challenge of achieving this could be underestimated.

“As with any payment system there is no room for error as it will be an integral part of the UK’s economic infrastructure. A phased rollout will best help us ensure customers get the safety, integrity and efficiency they have come to expect when making payments here in the UK,” Smee concluded.

Ian Foottit, payments strategy director at Deloitte, said, “On the plus side, Faster Payments does provide innovative retail banks with a real opportunity to think about customer friendly new services for the consumer. For example, offering emergency payments triggered by mobile phone alerts if a customer is in danger of missing the ‘pay by’ date on a bill could allow one bank to differentiate itself from its competitors.”

He added that there was likely to be a considerable cost to banks in terms of cannibalisation of existing CHAPS revenues, however, and said that there would undoubtedly be risk issues, as banks will have to approve payments within a matter of seconds of receiving requests for funds.

Increased risk of fraud

Stephen Ley, a partner in Deloitte’s Enterprise Risk Services practice specialising in payments and retail banking, said,  “The Faster Payment system will be a challenge for banks which could lead to increased risk of fraud as it will be harder for banks to detect and block fraud in the time window available. The existing process relies, in part, on banks having sufficient time to detect suspicious transactions.

Ley explained that Faster Payments could bring significant benefit to customers, businesses and banks as long as the risks are managed. He believes that the banks which successfully manage these risks will gain significant operational and strategic benefits.

“A number of banks have opted to issue card readers which work with their customers’ debit card to create a more secure authentication and authorisation process. With over 20 million customers regularly using internet banking, increasing online safety is clearly a priority,” Ley said.

Businesses will welcome the introduction of FP as it will enable them to reduce the charges they incur on payments below £10,000 by moving from CHAPS, the UK’s Real-time gross settlement (RTGS) system, to FP.

Real time customer balance 

Currently the only way to make a same-day payment is via CHAPS, which is significantly more expensive than the three day Bacs payments system.

The introduction of new services based on FP may, in time, also be used by merchants and others in preference to credit card and debit card transactions.

The implementation of FP has not been without its challenges and the ‘live date’ has already been deferred by six months to allow banks to ensure their systems are ready on day one. 

For some banks, having a real time customer balance across many channels including, ATM, phone, branch and internet, has required significant work, but for all the banks addressing the new security threats of an almost immediate and non-cancellable payment system is a challenge.

Major transformation 

When Faster Payments goes live transactions will be limited to £10,000 for immediate payments and £100,000 for standing orders, although some banks may choose lower limits.  In time it is expected that these limits will be increased.

Simon Bailey, payments director at Logica, said that this was the beginning of a major transformation in payments systems speed and capability in the UK and reflected similar pressures to improve the efficiency of payments systems across Europe.

"Payments are the lifeblood of commerce; their cost, speed and level of integration with business practices is a significant part of the cost of business. It is clear that banks and governments across Europe are focused on improving payments services and the UK's launch of Faster Payments is a major milestone in this journey," Bailey concluded.

Related articles

• Banks on track for faster payments
• Banks postpone same-day transfers
• Special Report: Single Euro Payments Area (SEPA)

Related links

• APACS
• Deloitte
  
• Logica