Payments supplement: Speeding it up
Written by Liz Morrell
This May saw the second anniversary of the rollout of the UK's Faster Payment Scheme. Big things were promised for the scheme, but more than two years on, take-up remains limited to the initial 13 members. Some of the huge benefits that were supposed to come through for customers and banks alike, such as the launch of new services, have still to come to fruition, while the rollout of the Direct Corporate Access (DCA) facility – introduced a year later – remains limited to one bank.
“We had expected there to be more use of it, but the banks have had other priorities,” says a spokesperson for the Payments Council.
The timing of the scheme has been much to blame. “When the banks set out on the faster payments route around four years ago they had very strong views on changing everything – and had ambitious plans,” says Bob Larkham, head of payment industry relations at Albany Software.
Yet by September 2008 the collapse of the banking industry put a grinding halt on such plans. “Banks had to revisit what their IT priorities were,” notes Larkham.
“Implementing UKFP requires integration of channels to new real-time systems, and to legacy banking applications,” says Colin Kerr, industry manager for payments and core banking, Microsoft Financial Services. “It's a complex process that requires careful planning to avoid introducing new processing risks,” he says. “The start-up banks will be in a better position to implement this quicker because they can leapfrog the technology,” agrees Amanda Gilmour, product director, Temenos AML and STP.
David Sear, divisional managing director of Global Business Payments at Travelex, previously worked at Voca – which as Vocalink now runs the infrastructure for the scheme. He says a bigger problem is to blame: “I was engaging with the banking industry to get the service introduced and one of the reasons that I don't think it has had the take-up it deserves is because the banks didn't really want to introduce it in the first place. The float wasn't really the issue – no one wanted to invest in a service that was already working well,” he says.
Faster Payments has rolled out though and according to the Payments Council 82 per cent of payments that could go through Faster Payments do. But again part of the trouble seems to be that the banks are keeping very quiet about such services, and as such, customers and corporate alike often know little about it. “At the moment Faster Payments is very much used behind the scenes and it tends to be used at the bank's discretion, which gives an inconsistent customer experience,” says Jeremy Light, head of European payments practice at Accenture. Until the service is uniform it is unlikely that any bank will be shouting about it.
More to worry about
Other worries have also held adoption back, with many citing the fear of fraud. “There is an inherently conservative view – particularly around fraud – that is putting a throttle on the development of faster payments,” warns Sear.
Others argue that with the correct 'know your customers' checks, and products in place such as Barclays' Pin Sentry or Experian Payment's Bank Wizard which verifies account details, such risks can be negated.
“As latency in payment systems is reduced by initiatives like UKFP a move toward real-time risk management is also required to mitigate operational and systemic risk. This places an increased emphasis on solutions for Business Intelligence across customer segments and transactions types,” says Kerr.
However, because of the speed at which money can be transferred banks are wary and it seems likely that the lower limits offered by some banks (which can be as low as £250) on faster payments are in place while they tighten their anti-laundering processes.
Another reason for the lower limits is to help the banks deal with their liquidity – something the larger users are less worried about. “The ones that are processing the big volumes do seem happy with the service and their liquidity profiles,” says Gilmour.
The Payments Council's spokesperson admits that the banking industry's insistence to brand each of their Faster Payments service differently has also led to confusion. “The banks often call it one of their own internal system titles – they just see it as the way money gets around,” she says.
And when it comes to DCA – where corporates can submit up to 1.2 million transactions in one file – the confusion is even greater. Just ahead of the banking crash, Barclays and RBS Group were to launch DCA services through Albany Software – only Barclays went live.
Running to time
Time restrictions on the service haven't helped. Until March the DCA service was limited to a 6am to 2pm timeframe – unsuitable for many corporates. It now runs from 3am to 11pm Monday to Friday, with a fuller service being considered for next year.
“We are working to get DCA hours to 24/7. We are negotiating on who pays the cost of that, but it looks feasible,” says Marcus Bateman, senior product manager at Barclays.
The service was also hampered by the £10,000 limit on faster payments, which at the beginning of September increased to £100,000, a move which should help stimulate demand. However, Salih Mripa, IT director at Direct Debit Limited, believes even this limit is too low. “For large, quick payments, to a lawyer when you are purchasing a house for example or for other business transactions higher than £100,000, CHAPS will remain the preferred method, as the faster payments limit will not enable people or companies to make significantly big purchases.”
Many think that two years on rival banks may leapfrog the DCA model completely – instead offering similar facilities through their own internet banking business products – something most are already developing. “Banks are starting to look at whether there is another way of doing things. If it is not DCA, then it will be a hybrid to meet the needs of the corporate customers,” says Larkham.
Norman Taylor, product manager at Experian Payments, agrees. “Other banks are looking at 'do we support DCA at all?'. A lot of customers are already on their business internet banking so many see that as a better solution for DCA,” he says.
Even the Payments Council believes DCA offers will evolve. “A lot of the banks will give a service that looks and feels like DCA but that’s not what they would call it,” says the spokesperson.
However, that could lead to further delays in wide scale take-up, says Direct Debit Limited’s Mripa. “We don’t expect to see other banks moving towards the Barclays model, so the industry is faced with multiple approaches to making payments. If there had been more consistency in the way corporates make faster payments when the initiative was introduced, then take up might have been greater.”
But as corporates catch on to the benefits for Faster Payments and DCA, banks would be stupid not to be making best use of such opportunities with many new companies already using it to their competitive advantage, according to Taylor. “New companies, such as mobile phone recycling companies, offer faster payments, and some of the lower end loan companies have used this and are sending emails or texts to their customers saying ‘we have agreed your loan and the money is now in your account’,” he says.
Such tactics are customer winners, according to Bateman. “One of our customers is a cash for old mobile phones business. They do a faster payment service to your bank account potentially by lunchtime the day after you have posted your phone off. That’s great customer service and something to go away and tell your friends about,” he says.
Indeed, Faster Payments creates the opportunity for a number of new services, such as mobile payments, but there seems to be a disagreement about how best to use such services. “Part of what was looked at was the ability to make mobile payments. The ability is there and there was a bank scheme that was looked at, but suddenly the individual banks are wanting to do something different and the telephone companies are looking at their own thing,” says Larkham.
Barclays Corporate is also building a number of new services. These include two scheme services – FIM (File Import Module) – a specialised version of DCA for agency banks, and a Direct Agency service, both of which are due to go live with clients early next year. It is also providing a DirectData service – a Barclays branded service that advises customers of payments that have been received.
The closure of central cheque clearing in 2018 means an alternative must be found. “Some of the bigger users will be looking at DCA or their bank’s own service as they move away from cheques,” says Taylor.
As banks profitability returns and IT budgets increase, the banking industry can’t afford to ignore the benefits of FPS – and the associated services it can support any longer. “If your bank’s not providing faster payments you can always move with your feet,” says Larkham.
Bateman admits this has already happened at Barclays. “We have clearly won business which is fantastic because businesses don’t move their banking lightly,” he says.
Faster Payments has its critics and its fans. “It’s an outstanding initiative that is being taken up more and more. It is achieving the objectives, but just a little slower than customers were hoping for,” says Gilmour, who believes that as confidence increases, take-up will also improve. “The faster payments scheme may not have had a fantastic trajectory in the first 12 months but unquestionably one of the best payment systems in the world.”
Light agrees: “FPS is not a big white elephant – it’s a solid service that is slightly ahead of its time.”