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What next for UK payments?

Innovative technology has given businesses an opportunity to boost their customer service. In today’s digital-savvy world, real-time payment processing meets customer demand to speed up receipt of funds with certainty, convenience and at a competitive cost. Corporates are also demanding a broader range of payment methods to improve their client experience.

Bacs payments currently take the biggest slice in the UK payments sector. The popularity of Bacs has grown gradually over time. For decades, it has been preserving the integrity of payment related services in the UK. In August 2015 alone, more than a million payments were processed in a single day. This record-breaking figure included 91 million Direct Debit transactions and 12 million Bacs Direct Credit payments.

Bacs is still used as primary method to pay staff salaries. More than 150,000 UK organisations currently use it with 90% of the workforce being paid using Bacs direct credit. This is an ideal scenario for people with a single, stable source of income. However, those who are self-employed or have multiple incomes would need more options to make those unplanned, last-minute payments.

It’s important to note that the foundation of the Faster Payments Service has its roots in both Bacs and LINK services, which offered strong connectivity with all UK banks. This established network has helped Faster Payments thrive with a record 5 billion transactions processed in 2015.

Figures from the Faster Payments Scheme indicate that more than 50% of all single immediate payments are made outside the normal banking hours of 9 to 5. With the ability to send 24/7 payments on the real-time system, businesses could cater to all types of consumer and business payments. Real-time payment could also benefit some businesses for paying sporadic and irregular wages and keep money in their bank account right until the payment is due, maximising interest.

The introduction of Faster Payments New Access Model will rely not just on immediacy but technical integration via a FinTech vendor coupled with a competitive pricing model. The proposed cost could drop to around 3p per transaction, which is cheaper than sending a Bacs payment at 5p per transaction.

The newly-formed Payments System Regulator (PSR) is keen to promote technological innovation in the payments sector by working closely with both consumers and businesses alike. Going forward, a core payments system cannot operate in isolation, but must encompass a centralised real-time infrastructure that boosts inclusive and competitive nature of the payments sector.

As the New Access model becomes more established and corporates begin to see the potential capabilities of real-time payments, will there still be a place for Bacs to remain competitive in the marketplace?


Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 13 November, 2015, 08:43Be the first to give this comment the thumbs up 0 likes

Well, we asked the same question 7 years ago, a couple of months before FPS went live at a Top 5 UK Bank. The consensus prediction was that FPS would kill BACS three years after its go live in 2008. Not only did that not happen but BACS actually goes around breaking records 7 years later (! 

I received my May 2008 salary via FPS. Based on my company's CFO's explanations of the advantages of FPS over BACS, we expected everyone to shift to FPS in the next few months. But, 7 years later, the mainstream market still seems to use BACS for payroll! 

I sometimes wonder if even the 10 years in the legendary Bill Gates quote about change is an underestimate when it comes to payments!

A Finextra member
A Finextra member 16 November, 2015, 21:12Be the first to give this comment the thumbs up 0 likes

@Ketharaman I think the "records" that BACS has broken are simply announcements that are made to make it sound relevant. A 40+ year old batch based payment system that takes three days to the money reach the beneficiaries account is not something we should be celebrating! Why is it not next day value, or same day value if applied before 12pm?

@Anish - I'm curious to understand where the figures of 3p per Faster Payment vs 5p per BACS transaction come from. These don't represent the reality as I understand it from discussions with many banks.


Anish Kapoor

Anish Kapoor



Member since

29 Oct 2015



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