Payments supplement: UKFPS feature - Getting impatient

The UK Faster Payments Service (UKFPS) was introduced last May to great fanfare but some people are still unable to access it on a regular basis. Vivienne Rosch looks at when full rollout can be expected and how some more far-sighted banks are hoping it will provide new opportunities

At midnight on 27 May one year ago a revolution was supposed to have been launched when UKFPS came into being, replacing the previous three-day wait for a payment to clear with a near real-time, same day system. The Faster Payment Service (FPS) is operated by Chaps and the infrastructure was built by VocaLink for the use of the 13 founder member banks, including all the major High Street names responsible for 95 per cent of all credit transfer payments made in the UK, such as HSBC, Barclays, Nationwide, Lloyds Banking Group, and RBS. Smaller building societies and others have since begun to offer the service. Of course, some of the original founders, such as HBOS, no longer exist, at least as standalone entities, after the upheavals of the financial crisis last year, so the integration challenge that they've faced in their general operations has perhaps delayed full rollout of UKFPS services to some customers. Certainly far too many people are still unable to process same day single phone or internet payments up to a limit of £10,000, or push through single standing orders up to £100,000. Recent criticism in the media, including in the Financial Times and on the BBC, has only served to highlight the patchy access to the scheme, depending on where you bank.

For the UK Payments Administration (UKPA, formerly Apacs) delivery of UKFPS is, however, a massive success. The central infrastructure, delivered by VocaLink, has certainly performed outstandingly, achieving 100 per cent live core service since launch. UKPA's head of PR, Jemma Smith says: "The system is meeting all its promises of being robust and secure, the central infrastructure has provided an uninterrupted service, enabling payments to be processed at any time - day, or night, seven days a week. By the end of its first 365 days and nights, the new service had successfully processed 183 million payments, worth nearly £70 billion."

The peak single day for uptake so far was on 2 March 2009 when over five million payment transactions, worth more than £1 billion, were processed. From a monthly figure of just under 23 million payments processed in March, totalling nearly £8.2 billion in value, volumes slackened slightly in April, but rose steadily again in June to stand at just below £9.15 billion worth of payments. Over 25 million transactions were processed that month in June, the last for which figures are available from UKPA. According to the Apacs replacement body, more one-off telephone or internet payments now pass through FPS than through the BACS system. Daily telephone and internet payment volumes through FPS are comparable to the daily average of those types of payments through BACS in 2007. More than half of all credit cards are now payable through FPS, four major credit card companies accepting this service. However, that means just under half are not, and disappointingly, less than half of all standing order payments are currently made by FPS.

A varied picture
Barclays is rightly proud to say they could receive FPS payments from launch date, through all channels, covering the internet, telephone and branches - a boast that RBS, but not all banks, can match. Barclays started making payments in a controlled way, initially setting low transaction value limits and quickly proceeding up to the scheme limits of £10,000 for single immediate payments and £100,000 for standing orders, and claim they were the first of the major High Street banks to achieve full ramp-up to scheme limits at the end of March 2009. For Nationwide, implementing faster payments on their existing technology platform has proved more difficult than they first anticipated; the integration challenge is no easy matter. They are investing significantly in new systems though and remain fully committed to offering FPS to their FlexAccount (current account) customers by the end of 2009, they say. Currently only a selected group can send and receive FPS payments.

This shows the variation between scheme members in rollout. Stephen Ley, a partner in Deloitte's Enterprise Risk Services practice, specialising in payments and retail banking, awarded FPS only a "B+" grade, due to its slow start and the cautious transfer limits set by the banks. He says there was quite a difference in the way banks rolled it out to their customers; responded to the increased fraud risk of near real-time payments, lessening the time for security checks; and in the communications they provided. In a government review this March of the operations of the Payments Council, responsible for the UK payments strategy and implementing faster payments, the Council was praised for its strategic work, but criticised for not ensuring that end users received the full benefits of FPS more quickly.

Some banks possibly left it too late to implement the necessary changes to prepare for the added exposure of a near-real time system. Andy Roe, general manager, payment software, for Fidelity National Information Services (FIS), who says they supplied "the living breathing heart of the FPS system - the real-time transaction switching engine to VocaLink" - comments that he thinks some of the banks found it more challenging than they expected. "They hadn't really grasped the implications," he continues. "Some of their ancillary systems weren't set up for the changes and caused them to be more cautious than they needed to be."

UKPA says there has been no increase in fraud as a result of FPS' introduction, nor any new types of fraud. Deloitte's Stephen Ley concurs: "Apacs' latest figures, up to 2008, show online fraud increased significantly by 132 per cent, but it's not thought this is associated with faster payments. If you look at the fraud levels in the first half of 2008, before faster payments went live, and at the fraud levels in the second half of 2008, there's no big jump, just a consistently higher level of fraud across all of 2008 compared to 2007." Many believe the rise in fraud is likely down to the economic recession simply causing more fraudulent activity.

How far have we come?
Introducing a fundamental change without a major hitch must be considered a success. It must also be reasonable to show caution towards a new service that is new to the banks and the industry. But now the infrastructure has proved itself, and the feared increase in fraud has not materialised, the remaining banks slow to achieve full rollout must catch up. Does the time-lag matter? Martin Wilson, VocaLink's chief commercial officer, voices concern: "Payment systems are all about confidence. The key issue for any system is that you need a level of ubiquity for customers to have the confidence to use it. If it's hit or miss whether the sending bank is able to send, and whether the receiving bank is able to receive in real time, then you won't get uptake because the consumer won't have the confidence to use it."

Direct Corporate Access
The next step in the UKFPS journey is Direct Corporate Access (DCA), launching this year, and enabling corporate customers to submit bulk immediate payments and agency banks to join. The main benefits of DCA are greater liquidity control and cost and risk reduction. "The infrastructure is ready and one member bank is already starting to exploit this capability," says Wilson. That member is Barclays, looking to roll out DCA by the end of the summer, using software from Albany.

Previous Albany innovations have become mandatory criteria in BACS Approved Software Service (BASS)' testing procedures. Its e-Pay multi-payment routing solution, supporting both BACS and FPS, was the first to achieve BASS approval for a Faster Payments Secure-IP software product. In July, Albany put its first test payments through DCA, and submitted the first ever payment for a commercial customer, Inverness-based payroll bureau Eagle Consulting.

The future of payments
BACS will continue for the foreseeable future, handling payments that are above the current value limits for FPS and direct debits. Albany director Georgia Leybourne believes we should regard FPS as an additional, not a replacement, payment method, bridging the gap between the old three-day BACS and the same day CHAPS services, in terms of both efficiency and cost.

Demand for CHAPS will continue, for higher value, same day payments. UKPA says it reviews FPS scheme limits on a regular basis but no changes are imminent. Leybourne believes trying to squeeze payments larger than £10,000 into FPS prematurely would be unhelpful. "It's got nothing to do with fraud, but banks need to control their exposure. Longer term I imagine it will replace CHAPS, which will be much more cost-effective, but not anytime soon."

Future developments
Paying for goods by FPS through online banking rather than by credit, debit card or PayPal is now a definite option. "This reduces merchant fees, increases traffic flowing through the online bank and massively reduces risk for everybody," explains VocaLink's Wilson. According to Deloitte's Ley some merchants might also want to link loyalty schemes, clubcards and so on to customers making faster payments. This might lead to some card displacement.

The most exciting possibility for FPS may be a move to mobile payments. "We've had many sorts of mobile payment offerings which have never been terribly convincing because they all involve an artificial step or two to make the payment," says Wilson. "Imagine a world though where by simply sending you a text message I can transfer money from my account into your account. If you can hook up mobile technology to faster payments, you've cut out the intermediate steps while exploiting the consumer's intuitive territory."

The FPS puts the UK in a competitive position globally. As Deloitte's Ley says: "Delivering near real-time payments 24/7, 365 days a year, including on weekends or out of banking hours is a real step forward for this country, compared to other nations." Both VocaLink and CHAPS have received enquiries from abroad about FPS. "Talk to a banker anywhere in the world, and they see the potential for this," confirms VocaLink's Wilson.

Most UK account holders already benefit from FPS, says UKPA, and most banks which are not yet operating at full capacity intend to do so by the end of the year - not before time though. "I think the banks, the Payments Council and the government, could all do more to promote the use of the service," says FIS' Roe. "If the general public were aware what the system is capable of, that would feed demand for new services." The route to FPS has been slower than predicted, but the future for payments seems secure, multiple, and fast. You shouldn't have to wait much longer for a fullservice and customers patience should finally be rewarded.

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