.gif)
| Q&A: UK Faster Payments Scheme
 Traditionally it took three days to clear the majority of electronic payments in the UK, so regardless if consumers or businesses used the phone, internet or a standing order to settle their bills, they’d have to wait a considerable time for their instruction to be processed. All this has changed however with the recent launch of the UK Faster Payments Scheme (UKFPS), an industry initiative that enables a near real-time service, vastly improving the customer experience that banks, building societies and others can now offer. Neil Ainger talks to Martin Wilson at the infrastructure provider VocaLink about the project and its implications Q1. On what date was the United Kingdom Faster Payment Scheme (UKFPS) officially launched? A: The Scheme launched on 27 May 2008 when the infrastructure platform, designed and built by VocaLink, to provide the capability for faster payments, went live. The launch was preceded by a period of rigorous testing involving the 13 founder member banks*, who are responsible for more than 95 per cent of all payments made in the UK, to ensure a smooth debut. Q2. (i) How difficult was it to get the 13 founder member banks to agree on the requirements for the common platform? (ii) What about smaller banks and building societies who want to take advantage of the central same-day payments system to clear phone, internet or standing order instructions - are they ready? A: VocaLink built the platform to the specifications and requirements of the industry as co-ordinated by APACS, the UK trade association for payments and the body who were responsible for the development and delivery of the Scheme. APACS announced in December 2005 that the decision had been made to offer a near real-time service rather than just a same-day service. They then awarded us the contract to develop the system. [CHAPS Clearing Company was appointed to operate the FPS at the beginning of the year]. Our brief from APACS was quite straightforward. We worked closely with the banks, who were clear on what they wanted to achieve. We defined and agreed the main requirements very early on in the project and have delivered them as specified. (ii) The specific details of each bank or building society’s offering will depend upon each separate organisation. From 27 May onwards the central service was up and running and it is now up to the member banks to roll out their services as they wish across their customer bases. [According to APACS on day one of the Scheme five per cent of members’ internet and phone payments were processed as faster payments. As an additional measure to ensure a smooth rollout some financial institutions phased the introduction across various customer accounts or placed an initial limit, lower than the £10,000 allowed for phone and internet payments, to allow for an easy ramp up. Standing orders, which have a maximum value of £100,000, are scheduled to start being processed through the Faster Payments system from 6 June this year]. Q3. (i) How easy has it been for banks, building societies and others to integrate the new technology platform and payments procedures into their back office systems? (ii) What training or compliance advice did you provide? A: Faster Payments heralds a fundamental restructure of the way the industry approaches payments. It is for banks to comment on how significant a challenge it was for them to integrate this new service across their core banking platforms. The interface into the central infrastructure itself is relatively straight forward and VocaLink developed an interface product for banks that is easy to install, tailor and extend as volumes grow. Banks are also integrating Faster Payments into their customer interfaces either on the systems used for telephone banking or internet banking, or those that hold all the account information. Q4. What benefits will the new platform offer to banks and consumers? A: Faster Payments creates choice for the consumer and for businesses and is designed to work easily with telephone and internet payments. It is a self-service banking option, which is attractive for banks as they now have lower overheads, compared to branch-based banking. In addition, customers prefer the fact that these payment options are available when and wherever they want them. We expect that Faster Payments will encourage more people to perform a greater proportion of their banking activity over self-service channels, such as internet banking. APACS is forecasting that it will mean a fundamental change in the way that we bank and the types of payments we make. UKFPS member banks can also enhance their offering to agency banks and improve their revenue from this source by sponsoring smaller banks into the service and performing settlement on their behalf. There will be a number of such ‘white-labelling’ opportunities in the months ahead. As the Faster Payments service develops, there is also significant scope for corporates to benefit, although any developments in this sector will necessarily be driven by demand. The initial key benefits of the Scheme will be: • As a mechanism for creating near ‘just-in-time’ trade payments, which enable corporations to take advantage of enhanced payment terms with suppliers The launch of UKFPS is a step-change for banks and provides the basis for expanding and enhancing their self-service banking propositions. Faster Payments is designed to be compatible with telephone and internet banking and lends itself to mobile banking and other new devices that are coming on stream and helping to integrate everyday banking with the way that we actually live. Q5. Please briefly describe the technology involved in the project and how it works? A: The central infrastructure is run on the VocaLink real-time payment platform. Member banks are connected to the central infrastructure over a private network – a Multi-Protocol Label Switching (MPLS), which provides connectivity for members and participants of the Scheme. The MPLS is a closed user group administered by VocaLink purely to provide a connection to Faster Payments. Sophisticated encryption and Public Key Infrastructure (PKI) principles have been employed to secure the network and the data in transit. The main component of the core infrastructure is the switching engine, which directs transactions to the other bank for authorisation. The Java-based settlement engine is built upon the new settlement capabilities employed by VocaLink for the Bacs Scheme. Once a payment is complete it is irrevocable. Member banks can easily view their net settlement position (the total amount they will pay or gain at settlement) or their bilateral positions (the exposure to any one member bank) in real-time online. For more technical information please visit: http://www.vocalink.com/VocaLink/En/Home/Payment+processing/Faster+Payments & http://www.apacs.org.uk/payments_industry/how_fps_works.html Q6. What kind of volumes are you expecting to go through the central platform? Is it scalable for the future, especially as phone and internet payments are expected to rise sharply in the years ahead? A: The industry has used a standard, phased delivery model to minimise the risk of failure during the rollout and ensure that all parties can accommodate growth. This means that, at first, the volumes will be low but as both consumers and the industry gain confidence in the service, they will increase (see Q2). Looking a few years ahead, we expect that Faster Payments will encourage further growth in phone, internet and mobile banking payments, which currently account for under 10 per cent of UK payments but are expected to rise rapidly. I’m confident that the system can handle this predicted growth. The Faster Payments central infrastructure has been tested against the volumes predicted for 2012 and is designed to scale up to the volumes expected for 2017. We have no concerns about the capacity of the central engine to cope with rapid spikes in demand or a prolonged incline in uptake. Remember that the system sits on the VocaLink real-time platform, which has been built to handle much greater volumes of transactions in the future, not merely in the UK, but also for the Single Euro Payments Area (SEPA) and other global market changes currently under way. Q7. Why was UKFPS delayed from November 2007 until May 2008? Was it due to technical difficulties with the platform, the amount of testing required by the banks, or the difficulty of meeting the needs of so many end users (co-ordinated by the main client Apacs)? A: The degree of change involved in delivering UKFPS was huge and a challenge to all the participants. We each had a responsibility to ensure that the new service launched successfully and worked as we expected on day one. APACS and its members took the decision to delay the launch to allow for an extended period of testing in order to ensure that the service was robust. The revised launch date gave all concerned more time to complete the rigorous testing we knew was essential. Q8. Has the original £65 million predicted cost of the central technology platform risen because of the delay? A: We cannot comment on budgetary and commercial matters. Q9. What anti-fraud measures, if any, have been built into the new UKFPS system to try and protect consumers A: Security has been a high priority for the connection between banks and the central infrastructure. We’ve made it robust by design at the network and application layers and at the message level. Some banks are extending their existing fraud screening measures and others have implemented new systems. VocaLink has been exploring this area with banks to develop a centralised system that can be optionally used and which allows each bank a high degree of customisation and autonomy to fit in with their existing fraud policies. Obviously, each individual bank will operate their own fraud detection software as they currently do for all payments, and decide the best course of action for themselves. Q10. Why haven’t APACS and the other participants in the Scheme installed a real-time system, instead of a A: The industry is implementing a near real-time service. For internet and phone payments, customers will have a 24 hour, 7 days per week, 365 days per year service where payments will reach the recipient in a couple of hours. Standing Orders will be processed by banks on working days only but on the same day, which is quicker than the current three-day service. The industry moved to a near real-time service to leap-frog the current capabilities elsewhere and to be in a good position to accommodate future market demand. Q11. How does the UKFPS fit in with the SEPA and PSD initiatives – will the technology be compatible and interface with wider global payments schemes easily? A: Interoperability was always a key criterion of the design. The system has been built with SEPA capability in mind and thus it has the capacity to be ISO 20022 compatible. We also committed a large amount of highly specialised resource to the task of defining how the ISO 8583 card standard would be used within Faster Payments in order that it would be forwards and backwards compatible. We had to make sure that payments in legacy formats could be translated into ISO 8583 effectively; and that payments in ISO 8583 could be translated into other emerging standards such as ISO 20022. The system is ideal for sterling-to-sterling or euro-to-euro payments; indeed any single currency payments. It can also be readily extended to help banks meet future SEPA requirements. Martin Wilson is the chief commercial officer at VocaLink Background to UK Faster Payments Scheme The UKFPS came about because of complaints, from small businesses and individuals in particular, about the three-day clearing cycle that was previously employed in the UK. The critical government-backed Cruickshank report in 2000 highlighted these problems but at the time the industry decided that the business case for a low-cost faster payments scheme, and an abolition of the old three-day cycle, was not justified. The Office of Fair Trading (OFT) intervened in 2004 and the following year was instrumental in setting up the Payment Systems Task Force (subsequently wound up and replaced by the UK Payments Council) to try to find a consensual solution to reduce clearing times on phone, internet and standing order payments. The idea for the UK Faster Payments Scheme was born in 2005. APACS was responsible for the development and delivery of the FPS but the CHAPS Clearing Company will actually operate it. The contract to provide the central technology infrastructure for the Scheme was given to Immediate Payments Ltd, a joint venture set up by Voca and Link, which have since merged to form VocaLink. Now that the central infrastructure is live the next phase of the project involves establishing a direct corporate access channel, which will enable corporations, especially those paying a large number of employees, to submit files of payments directly into the system (in much the same way as they currently do through the Bacs system). These corporations will need to be sponsored by a bank that is already either a member or an agency within the FPS. * The 13 founding members of UKFPS are: Abbey; Alliance & Leicester; Barclays; Citibank; Co-operative Bank; HBOS; HSBC; Lloyds TSB; National Australia Group including the Yorkshire and Clydesdale Banks; Nationwide Building Society; Ulster’s Northern Bank; Northern Rock; and the Royal Bank of Scotland Group including NatWest and others. Accumulatively the 13 founders account for more than 95 per cent of all payments made in the UK. • FST will be running a UKFPS feature in the July-Aug08 edition of the magazine, looking at how the banks intend to use the new faster payments capability, and what it means for customers and the industry. |
 
 |
