Faster Payments Service (FPS) is a UK banking initiative to reduce payment times between different banks' customers accounts, from three working days using the existing BACS system, to near real time; essentially as if two accounts at separate banks were held within the same bank. CHAPS already provides limited faster-than-BACS service (by close of business that day) for 'high value' transactions, whilst FPS is focused on the much larger number of payments of any size up to £10,000.

Twelve banks and one building society, accounting for about 95 percent of payments traffic, initially committed to use the service. Other financial institutions could join later, either as full members or to access the system through agency arrangements (such as smaller building societies) with a member.

Faster Payments were officially launched on the 27 May 2008 (though some users reported being able to process very small value (1p) transactions as 'faster payments' the previous week). Initially only 'immediate' (non-scheduled) payments, representing about 5 percent of all payments, were enabled to go via the new service, with full access for member organisations, to future-dated and standing order payments, from 6 June 2008. In practice however, the new service was barely available for several months, and has remained significantly constrained thereafter by the approach of individual member banks to adoption. A Sort Code Checker tool was released by APACS shortly ahead of the launch, which shows whether a specific sort code is able to receive Faster Payments.

There have been few official announcements regarding the cost per transaction of FPS. However, it is expected to be around £1-£5. This currently only applies to business users and to immediate payments in particular. No retail banks yet charge individual customers using the service, nor is there currently any sign this will change.

Participating Members
The original founding members of the new service were: Abbey, Alliance and Leicester, 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).
 

Implementation Status

Payments through standing order and to credit cards also differ for each provider. 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. This will ultimately enable businesses to submit large numbers of payments directly into the Faster Payments Service.

 

Technology
Faster Payments will support one-time payments, standing orders, corporate bulk payments, and return payments. 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. After six months volume had approached 4 million transactions; after nine months, 5 million transactions and £1bn. The system is being designed by VocaLink with the backing of APACS and comprises networks of member institutions (banks) surrounding the core central system. The central system will handle the actual message switching in near real time, as well as 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.
 

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 legislation would be introduced, if necessary, to open payment systems to increased competition. Initially therefore, the banking industry was consulted by government on further steps and progress in payments services monitored both by the Competition Commission and the Office of Fair Trading (OFT).

By May 2003, whilst the OFT was able to report some modest improvements in payments services (such as changes to BACS and the governance of APACS), a number of competition concerns remained and, in December 2003, the Treasury announced that 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" - 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.

By May 2005 the Task Force announced an agreement had been reached to reduce clearing times on phone, internet and standing order payments. This committed the payments services industry to develop a system that would clear electronic payments in no more than half a day - the so-called 'ELLE' model - resulting in payments being received the same day if made sufficiently early. Implementation groups were then 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 a recommendation of APACS to go for a still more ambitious target on payment times; one that would ensure access to funds within a couple of hours of any payment being made and also permit payments to be initiated by bank customers 24 hours a day, 7 days a week - to be introduced by the end of (November) 2007. This stage also marked the formal dissolution of the Payments System Task Force. Thereafter a permanent body was established, the Payments Industry Association, responsible for governance of all payments systems - including Faster Payments, which took over the outstanding work of the Task Force.
 

Organisation of FPS
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. (CHAPS Clearing Co. is 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.
 

For more information visist the Official Faster Payments Website