The UK Faster Payments initiative may have been delayed, but its implementation will revolutionise electronic payments within the UK and heralds a fundamental re-structure of the way the industry approaches payments. Strange then that the launch of the initiative
back in May passed us by with little fanfare and still receives little interest from the retail banking pages of the national press when it represents such a dynamic shift in the way people will do business.
Operating to provide near real-time straight-through-processing of electronic money transfers, UK Faster Payments will make it possible to make payments at any time, on any day and have the receiving bank see the cash in their account immediately.
From a retail perspective this changes things significantly. The ability to transfer money immediately completely revolutionises the concept of actually having cash – money can be lent immediately and paid back immediately, suppliers can be paid and refunds
can be made to customers in real time, and money can be transferred on non-business days.
Massive changes will also be seen in the movement of money and the velocity of cash. By introducing immediacy into UK payments the ‘float’ period, or time taken between money being debited from one account and credited to another, is now taken away. Cash
will no longer be in transit for three days while a transaction is processed which means cash is not only liquid for longer but also account holders have the added bonus of not losing out on three days’ worth of interest.
UK Faster Payments will also prove essential for banks seeking long-term success in the face of increasing competition. Banks that can offer corporate customers faster payments will have a stronger service offering for their corporate clients than those
that don’t, and by offering this service will be more successful.
With corporate payments the challenge will come when people start reverting to real-time payments and the potential flow of cash being staggered periodically throughout the day. In the current global payments environment some banks are used as a pool sof
liquidity on an intraday basis – funds are borrowed in the morning and are paid back in the afternoon with no cost incurred by the borrower. Under UK Faster Payments however the same activity, which was exclusive to banks, can be undertaken by corporates who
can borrow huge amounts against the bank in the morning with the knowledge that they have a payment coming to them later that day and asks questions about how banks will manage the costs of intraday liquidity.
UK Faster payments will monumentally change the way that people interact on a business level, and looking ahead it is expected that the initiative will encourage rapid growth in phone, internet and mobile banking payments, which currently account for only
10% of UK payments.
Unlike so many of the other initiatives hitting the European payments shores, UK Faster Payments really gives us a glimpse of where the future of the payments industry is going and we should unbutton our lips and start shouting about it!