Faster Payments Service
Encyclopedia
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
banking initiative to reduce payment times between different banks' customer accounts from three working days using the long-established BACS
BACS
Bacs Payment Schemes Limited is a United Kingdom scheme for the electronic processing of financial transactions. BACS direct debits and BACS direct credits are made using the BACS system...
system, to near real time. CHAPS
CHAPS
The Clearing House Automated Payment System or CHAPS is a British company established in London in 1984, which offers same-day sterling fund transfers...
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 order
Standing order
standing order or standing orders may refer to:*standing order , instruction to a bank to pay a set amount at regular intervals from one account to another...
s).
Twelve banks and one building society
Building society
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially mortgage lending. These institutions are found in the United Kingdom and several other countries.The term "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 for immediate payments by business users. No retail bank currently charges personal customers, nor is there any sign this will change.
FPS was officially launched on the 27 May 2008 (though testing the previous week allowed users to process very small value (1p) transactions as 'faster payments') for non-scheduled, 'immediate' payments (about 5 percent of traffic) only, 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 was made available by APACS
APACS
The UK Payments Administration Ltd is a United Kingdom trade organisation that brings together all payment systems organisations and gives banks, building societies and card issuers a forum where they can work together on non-competitive issues...
shortly ahead of launch, which shows whether a specific sort code
Sort Code
A sort code is the name given by both the British and Irish banking industry to the bank codes which are used to route money transfers between banks within their respective countries via their respective clearance organisations. In Ireland it is known as the NSC or National Sort Code and is...
is able to receive Faster Payments.
Background
In November 1998 the UK TreasuryHM Treasury
HM Treasury, in full Her Majesty's Treasury, informally The Treasury, is the United Kingdom government department responsible for developing and executing the British government's public finance policy and economic policy...
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
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
, Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
, announced legislation would be introduced, if necessary, to open payment systems to increased competition. Initially the banking industry was consulted by government on further steps and progress in payments services monitored by the Competition Commission
Competition Commission
The Competition Commission is a non-departmental public body responsible for investigating mergers, markets and other enquiries related to regulated industries under competition law in the United Kingdom...
and the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
(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 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"HM Treasury, Pre-Buget Report - para. 3.16 December, 2003; essentially self-regulation
Self-policing
Self-policing, a form of self-regulation, is the process whereby an organization is asked, or volunteers, to monitor its own adherence to legal, ethical, or safety standards, rather than have an outside, independent agency such as a governmental entity monitor and enforce those standards.-To the...
. In March 2004 the OFT announced the formation of a joint government-industry body, the Payments Systems Task Force, under its chairmanship
OFT, Press release PN 43/04 - payments systems task force announced 15 March 2004.
Agreement
In May 2005 the Task Force announced agreement had been reached to reduce clearing times for phone, Internet and standing order paymentsOFT, Press release PN 94/05 - faster payments service announced 24 May 2005. 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
LINK (UK)
LINK is a shared interbank network of automated teller machines operating in the United Kingdom. The network counts 37 member institutions, of which many are various banks and building societies issuing LINK ATM cards, and the remainder are independent ATM operators who do not issue cards...
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
APACS, Press release - details of faster payment services 16 December 2005 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
Payments Council
The Payments Council is an organisation of financial institutions in the United Kingdom that sets strategy for UK payment mechanisms.-History:...
OFT, Press release PN 159/06 - new governance body for payment systems 14 November 2006 (later Payments Council), responsible for governance of all payments systems - including Faster Payments.
Delays
In July 2007 APACSAPACS
The UK Payments Administration Ltd is a United Kingdom trade organisation that brings together all payment systems organisations and gives banks, building societies and card issuers a forum where they can work together on non-competitive issues...
announced a delay in the introduction of Faster Payments, beyond November,APACS, Press release - banking industry update on faster payments project 12 July 2007 due to "complex and time-consuming" testing requirements, with a new target of May 2008 later established.APACS, Press release - revised timescale for faster payments service 14 August 2007 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, OFT, Press Release PN 34/09, Payment Systems working better for consumers but more to be done 25 March 2009 with customers losing interest estimated between £38 and £82 million as a result. By October 2009 (15 months after launch) capacity had reached 47 percent of standing orders and 73 percent of all single payments.
Organisation of FPS
APACSAPACS
The UK Payments Administration Ltd is a United Kingdom trade organisation that brings together all payment systems organisations and gives banks, building societies and card issuers a forum where they can work together on non-competitive issues...
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
CHAPS
The Clearing House Automated Payment System or CHAPS is a British company established in London in 1984, which offers same-day sterling fund transfers...
(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
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
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: AbbeyAbbey (bank)
Abbey National plc was a UK-based bank and former building society, which latterly traded under the Abbey brand name. It became a wholly owned subsidiary of Grupo Santander of Spain in 2004, and was rebranded as Santander in January 2010, forming Santander UK along with the savings business of the...
(now Santander UK
Santander UK
Santander UK plc is a wholly owned subsidiary of the Spanish Santander Group. Based in the United Kingdom, it operates under the name of Santander. Santander is the third largest bank in the UK in terms of deposits, the second largest in terms of mortgages held, and the fourth largest in terms of...
), Alliance and Leicester (now part of Santander UK
Santander UK
Santander UK plc is a wholly owned subsidiary of the Spanish Santander Group. Based in the United Kingdom, it operates under the name of Santander. Santander is the third largest bank in the UK in terms of deposits, the second largest in terms of mortgages held, and the fourth largest in terms of...
), Barclays, Citi, Clydesdale
Clydesdale Bank
Clydesdale Bank is a commercial bank in Scotland, a subsidiary of the National Australia Bank Group. In Scotland, Clydesdale Bank is the third largest clearing bank, although it also retains a branch network in London and the north of England...
and Yorkshire Bank
Yorkshire Bank
Yorkshire Bank is a commercial bank in England and Wales, a division of Clydesdale Bank, which in turn is a subsidiary of National Australia Bank. It mostly operates in the North of England, especially in Yorkshire. In 2006 underlying profit rose 16.7 per cent to £454 million compared with a...
s (National Australia Group), Co-operative Bank
Co-operative Bank
The Co-operative Bank plc is a commercial bank in the United Kingdom and Guernsey, with its headquarters in Manchester.The bank markets itself as an ethical bank, and refuses to invest in companies involved in the arms trade, global climate change, genetic engineering, animal testing and use of...
, HBOS
HBOS
HBOS plc is a banking and insurance company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group having been taken over in January 2009...
, HSBC
HSBC Bank (Europe)
HSBC Bank plc is one of the four major clearing banks in the United Kingdom and is a wholly owned subsidiary of HSBC Holdings. The business ranges from the traditional High Street roles of personal finance and commercial banking, to private banking, consumer finance as well as corporate and...
, Lloyds TSB
Lloyds TSB
Lloyds TSB Bank Plc is a retail bank in the United Kingdom. It was established in 1995 by the merger of Lloyds Bank, established in Birmingham, England in 1765 and traditionally considered one of the Big Four clearing banks, with the TSB Group which traces its origins to 1810...
, Nationwide Building Society
Nationwide Building Society
Nationwide Building Society is a British building society, and is the largest in the world. It has its headquarters in Swindon, England, and maintains significant administration centres in Bournemouth and Northampton...
, Northern Bank
Northern Bank
Northern Bank , is a commercial bank in Northern Ireland. It is one of the oldest banks in Ireland having been formed in 1809. Northern Bank is considered one of the leading retail banks in Northern Ireland with 82 branches and four finance centres...
(Danske Bank
Danske Bank
Danske Bank is a Danish bank. The name literally means "Danish Bank" It was founded 5 October 1871 as Den Danske Landmandsbank, Hypothek- og Vexelbank i Kjøbenhavn ....
), Northern Rock
Northern Rock
Northern Rock plc is a British bank, best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility, to replace money market funding, during the credit crisis in 2007. Having failed to find a commercial buyer for...
, and Royal Bank of Scotland Group (including NatWest and Ulster Bank
Ulster Bank
Ulster Bank is a large commercial bank, one of the Big Four in both Northern Ireland and the Republic of Ireland. The Ulster Bank Group is subdivided into two separate legal entities, Ulster Bank Limited and Ulster Bank Ireland Limited...
).
Implementation
Information from APACS on the current availability of Faster Payments is maintained at their webpage: 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
Direct corporate access
Direct Corporate Access is part of the Faster Payments Service which provides a same day clearing payment service to UK member banks. Direct Corporate Access will provide Banks' business customers with direct access to the Faster Payments Service clearing service in a very similar way that...
Channel and the first such payment was made in July 2009PR Newswire, First Payment via UK Faster Payments Service Direct Corporate Access 23 July 2009. 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."UK Payments Administration, Faster Payments Scheme Boosts Banks’ Ability to Provide a Competitive Service to Customers 10 September 2010
Technology
Faster Payments is designed to support one-time payments, standing orders, corporate bulk payments, and return paymentsPerot Systems, White Paper: Addressing the Issues of Faster Payments Services for Banks & Corporates. Stephen Edward Walsh & Sasmita Choudhury 23 May 2006. 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 reachedeasier.com, Faster Payments passed one million transactions a day mark 12 September 2008. After six months volume had approached four million transactionsAPACS, Press release Faster Payments Service volumes reach new peak 30 December 2008; in March 2009, after nine months, five million transactions and £1bnslicon.com, Faster Payments beats £1bn in one day 9 March 2009. The system, designed by VocaLink with the backing of APACSAPACS
The UK Payments Administration Ltd is a United Kingdom trade organisation that brings together all payment systems organisations and gives banks, building societies and card issuers a forum where they can work together on non-competitive issues...
, 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.