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Faster Payments: gearing up for the New Access Model

In a world where corporate transactions take place around the clock, payment delays are no longer acceptable. How should banks and PSPs prepare for the New Access Model?

Since its introduction to the UK in 2008, the Faster Payments Service (FPS) has gained huge momentum. Customers are already seeing the benefits in reducing payment processing times, from three working days using the BACS system to as little as a couple of minutes.

Although the service has significantly reduced payment times, today’s digital savvy and ever-demanding customers expect ubiquitous access to a real-time payment service, regardless of who they bank with – something, which is a challenge for a number of smaller banks and non-traditional payment service providers (PSPs) in the UK. That’s where the New Access Model comes into play, by offering a new way to connect to the service and extending its reach to a number of new financial institutions in this space.

Over the last seven years, the FPS has handled over four billion payments and is currently responsible for processing around £100 million worth of payments per month. And while these figures are already an achievement, the market has been constrained by the fact that only 11 members connect to FPS directly. With only 2 of 11 participants offering Direct Corporate Access (DCA) to faster payments, corporates wishing to submit payments files by FPS are limited in their choice of banking.

In addition to the direct access members, 400 smaller banks and non-traditional PSPs access the platform indirectly through sponsor banks. The cost of being a direct member is unduly high for many of these players, who are also increasingly demanding a real-time 24/7 service. To deal with these issues, the Faster Payments Scheme is launching its New Access Model in December 2015, offering a new way to connect to the service.

The initiative goes beyond the traditional models of direct and indirect access, by connecting to existing systems via a technical aggregation service. This will present a software accreditation programme aimed at the fintech vendor community, who in turn can facilitate direct connectivity to the FPS for a number of new challengers and PSPs. When complete, this will create a more level playing field for any bank or PSP that wishes to offer immediate real-time payments, where it can use an accredited vendor to provide the technical connectivity to access the scheme. Crucially, the new model means that users that previously had to use the bank-sponsored route can move from near real-time and same day payments to truly immediate, real-time payments.

Once the New Access Model is introduced, those who have previously accessed FPS via a bank-sponsored indirect model will have three options:

  1. Build an in-house solution. This could be both costly and time consuming, depending on the technical requirements and the nature of running 24/7 back-office platforms and operations that are required to achieve real-time payments.
  2. Outsource to an accredited bureau. With bureaus charging for each individual transaction, this method could also be expensive depending on the bank’s requirements and isn’t a sustainable option in the long term.
  3. Utilise a hybrid model. Banks and PSPs could use readymade technical aggregation software that is accredited as part of the New Access Model. With most vendors offering aggregation services on a cost effective subscription basis, and some vendors even choosing to abandon additional charges for transactions, the hybrid model could result in a very quick return on investment for any new players entering the market.

Whichever route they opt for, time is running out for the banks and PSPs to make their choice. It’s an exciting time for the payments sector: come December, the UK will enter the next phase in the ongoing payments revolution.

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Comments: (10)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 September, 2015, 18:59Be the first to give this comment the thumbs up 0 likes

When I was involved in implementing FPS for a Top-5 UK Bank, we felt the same i.e. people want immediate payments. While FPS has gained momentum, I was puzzled to read recently that not only has it not managed to supplant BACS but BACS volumes have broken records recently.

Bacs busts 100 million payments a day mark

Keen on knowing your take on this.

A Finextra member
A Finextra member 10 September, 2015, 21:58Be the first to give this comment the thumbs up 0 likes

Whilst I agree with the thrust of the article, the new access model really just hopefully opens up access to Faster Payments to a wider range of players. The rails are not changing and are the same ones that have been there since 2008, thus whatever will be possible come December was possible last year and the year before that. I am hoping that the new entrants into the market can do a better job of educating their customers, be they corporate or retail, about what is possible today. For some reason this seems to have been done very badly - take PAYM as an example, only 1.5 million transactions since go live and virtually no-one is aware of it.

I am sure that employers who were affected by the bank holiday weekend BACS problems would have been only too happy to have access to a realtime option. Knowing within a few seconds or minutes that employees wages had been paid successfully and being able to submit payments on the day they are due would I imagine attract an increasing number of business customers in the future should any bank or PSP wish to push this agenda. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 September, 2015, 10:29Be the first to give this comment the thumbs up 0 likes

@DavidGodfrey + 1. Like I pointed out in my comment on Bacs busts 100 million payments a day mark, my employer switched to FPS back in May / June 2008 but most companies still seem to use BACS for payroll. This definitely signals a huge deficit in marketing by banks of their new products / services (or do they have some strong vested interest to maintain the status quo?).

A Finextra member
A Finextra member 11 September, 2015, 12:55Be the first to give this comment the thumbs up 0 likes

The cost of a faster payment is still many times more than a BACS payment - therefore if you're sending funds in a scheduled fashion BACS makes more sense. 

To the point about volumes increasing, fintech (such as gocardless) is actually now making the BACS DD infrastructure available to more people (replacing cash/cheque for club subscriptions for example) and changes such as the DVLA allowing monthly car tax payments via DD also continue to drive volume.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 September, 2015, 13:33Be the first to give this comment the thumbs up 0 likes

@ChrisHigham: The VocaLink exec who responded to my comment on Bacs busts 100 million payments a day mark seemed to attribute the continuance of BACS to lack of support of Direct Debit in FPS. TY for clarifying that FPS is costlier than BACS. That makes more sense in explaining the longevity of BACS. (I was under the impression that FPS is free!).

A Finextra member
A Finextra member 11 September, 2015, 14:11Be the first to give this comment the thumbs up 0 likes

For consumers it's free (and as a consumer you don't really get to make BACS payments outward except via DD anyway) - for business banking and for banks directly into the schemes there are cost differences between the schemes.  Don't forget as well that BACS isn't subject to the FP transaction value limit so for businesses paying large supplier invoices, etc you have to use BACS.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 September, 2015, 19:35Be the first to give this comment the thumbs up 0 likes

TY @ChrisHigham. That said, any idea what %age of BACS transactions below FPS limit have migrated to FPS?

A Finextra member
A Finextra member 12 September, 2015, 10:35Be the first to give this comment the thumbs up 0 likes

While I think it's true that BACS volume increases may be due to the number of direct debits that the average customer now has, and people's acceptance of this as an alternative to sending a cheque, etc. I don't personally favour the idea of moving Direct Debits to Faster Payments but rather add to FPS an e-Invoice / Request for Payment capability that puts the consumer in control of making the payment and would presumably remove a lot of complexity in payment systems to support mandate processing and checking. Zapp would seem to offer what is required but, as with PAYM, the visibility to anyone who doesn't work in Banking or Fintech is virtually zero. Hopefully when Zapp launches properly the marketing effort will get cranked up significantly.

On the FPS cost side, I believe economies of scale must play a big part. As volumes increase on FPS it must be possible to bring the costs down. The new access model will play a big part in this regard by levelling the playing field and increasing competition in the space - the sooner everything is ready to go to support new Faster Payments members via the new access model, the better!

A Finextra member
A Finextra member 12 September, 2015, 10:51Be the first to give this comment the thumbs up 0 likes

I'd also be interested to know what volume of BACS payments are actually for amounts above the Faster Payments scheme limit? There can't be a significant percentage of salary payments for example that are greater than £10K for example. Using the DCA option to submit bulk payments to Faster Payments still provides a window to screen payments / manage risk, so I don't believe it should be an obstacle to moving away from BACS.

 

 

A Finextra member
A Finextra member 17 September, 2015, 10:28Be the first to give this comment the thumbs up 0 likes

Ketharaman, David, Chris - thanks for all your comments. You’ve highlighted some key issues here.

@Ketharaman Swaminathan, you mention that while FPS has gained momentum, it has not managed to replace BACS but instead BACS volumes have broken records recently.

BACS has broken records of late and will continue to do so for a while. Faster Payments is only seven years old, but it’s growing steadily 20% year on year, processing in excess of 100 million payments each month. We will start to see changes as banks begin to commit to the New Access Model and implement it during 2016.

@David Godfrey, you mention the need for educating customers about the Faster Payments and how economies of scale could bring costs down.

More awareness is needed, definitely, to inform and educate banks and PSPs about the benefits of the Real-Time Faster Payments New Access Model.  Once the popularity grows and corporates begin to see the benefits of submitting bulk payments to Faster Payments, it is likely that FPSL will consider easing the transaction limit.  

@Chris Higham, you’ve mentioned that the cost of a faster payment is still many times more than a BACS payment.

FPSL believe that costs of payments under The New Access model will be far cheaper than the current costs if more and more banks sign in to this model.

Hopefully the above helps clarify on some of the points raised? Do let me know if any other thoughts – or suggestions for future blog topics! 

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