23 October 2017
Richard Ransom

Bottomline Technologies

Richard Ransom - Bottomline

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Faster Payments - It’s time for corporates to take a fresh look

11 January 2016  |  5940 views  |  2

The UK’s Faster Payments Service (FPS) turned seven years of age last summer. In this relatively short lifetime Europe’s only 24/7 real-time payments system has proven to be a solid success. With payment volume growth for Single Immediate Payments growing at 19.8% in the last year alone, Faster Payments now averages over 110 million payments a month, recently passing the five-billionth payment milestone.

In comparison, cheque payments continue on a rapid downward trend, reducing a further 12.9% last year. Bacs payments have increased by 3.6%, with CHAPS up 3.3%, though the total value of CHAPS transactions fell by 3.4%. In an overall UK payment market volume growth of 3%, Faster Payments are the standout performer[1]

FPS has become natural fit for today’s demanding 24/7 consumer lifestyle. It offers both online and mobile initiation, settles in (near) real time and provides a robust platform for future innovative developments by Fintech companies. It demonstrably meets both consumer and business expectations of a modern payments service, providing security, simplicity, speed and stability for users.

The impressive volume growth demonstrates the increasing attractiveness of Faster Payments for both corporate and personal customers. With further changes planned to broaden FPS appeal, it is a good time for organisations to reassess the benefits and cost savings this evolving service can provide for their business today, and tomorrow.

 

Corporate Benefits

Until recently Barclays was the only bank offering Direct Corporate Access (DCA) to Faster Payments. Progressively, HSBC has just announced that they are live and able to offer DCA to their business customers too. By utilising Direct Corporate Access, companies can streamline payment processing for a range of transaction types such as urgent but low-value payments, ‘just-in-time’ supplier payments, direct remittances, refunds (thus replacing cheques), cash management payments, weekly payroll runs and staff expenses.

DCA can provide a number of other benefits:

  • Speed – more efficient payments processing and enhanced cash-flow visibility via (near) real-time settlement of payables and receivable
  • Ease – companies submit payments files direct to the Scheme and receive a confirmation back that all the payment instructions have been accepted for processing
  • Simplicity – DCA uses the existing Bacs-style ‘Standard 18’, hence little change is required to existing Accounts Payable or payroll systems. Files of payments can be imported directly into the Scheme from ERP/Accounts or payroll systems via Scheme approved software
  • Flexibility – payments can be submitted at any time of the day, irrespective of normal banking hours
  • Scale – bulk processing and simplified reconciliation provides one debit entry against multiple credits
  • Security – FPS provides a valuable contingency alternative to 3-day Bacs processing if a payment is urgent or the company missed the pay run.

Many businesses are already using the DCA model to benefit from the efficiencies Faster Payments can provide to organisations. The variety of businesses further testifies to its wide appeal, with sizable take-up by Non-bank Financial Institutions, along with manufacturing, payroll services, public sector, telecom, logistics, retail, leisure, and charity sectors, among others.

 

Evolving Service

The initial limitations of DCA today are likely to change in the near future. In any assessment of a payment scheme’s likely evolution, it is useful to reflect that Faster Payments was not initially a product of improvement initiated by an innovative banking sector, but a result of Governmental action and Regulatory mandate. However ‘Paym’, the latest FPS mobile payment development, was initiated by the industry rather than Regulator driven. Outside of Barclays and HSBC, the absence of DCA products from the other FPS direct participant banks indicates that the banks are lagging behind the payment expectations of their corporate customers.

 With DCA, it seems the end users and regulatory mandates will again drive service development. The Payments Systems Regulator (PSR) carries a remit to foster competition and encourage innovation in the UK payments industry. In December 2014 the Faster Payment Scheme Ltd (FPSL) published the consultation white paper ‘Faster Payments: A vision for a New Access Model’. This recognises the need to support and enable broader access to FPS thus providing a ubiquitous real-time experience for customers – what it terms the ‘New Access Model’.

FPSL set-out its intention of allowing more open access to FPS to encompass both new and existing payment service providers and Fintech companies, providing ‘Paym’ and other digital and mobile payment services. A recent change to FPS is the recent step-change from £100,000 to £250,000 transaction size limit. In summary: we can continue to expect wider, easier corporate access to an enhanced Faster Payments Service in the near- to medium-term.

 

Birthday Review

 The Direct Corporate Access service offers significant benefits to businesses today. With HSBC now joining Barclays in offering DCA, other banks are likely to follow. This will provide corporates with more choice in the market to buy in the service, avoiding the inherent difficulties in setting-up new bank relationships simply for DCA purposes. The additional competition should see prices for the service fall over time. There may be even higher FPS transaction limits enabling expensive CHAPS payments to be migrated and the New Access Model will see a number of agile and innovative non-bank providers to enter the market.

The increase in the number of banks offering Direct Corporate Access to the Faster Payments scheme represents a significant milestone for this popular service, and signals a good time for your business to review how it can enhance efficiency and reduce the associated costs of your current payment processes.

 

[1] Payments Council, ‘2015 Payments Statistics’.

 

Time for corporates to take a fresh look at Faster Payments? TagsPaymentsInnovation

Comments: (2)

Andy Hunter
Andy Hunter - Perficiam Ltd - London | 12 January, 2016, 08:33

Richard makes some compelling points, but one area that requires attention is the recovery of misdirected payments. There have been several well publicised horror stories where funds have been sent to the wrong account by error or as the result of fraud. Banks seem slow to act in these cases and lack the legal framework to recover funds even when the error is clear. This undermines the scheme's utility, certainly requires an industry code of practice and perhaps enabling legislation.

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David Godfrey
David Godfrey - ACI Worldwide - Watford | 12 January, 2016, 10:02

I'm not sure misdirected payments is a Faster Payments specific problem nor one that should discourage the uptake of Faster Payments. If I send a BACS payment to the wrong beneficiary, I am faced with the same problem, albeit there is a three day window to act. The near-instant irrevocability of Faster Payments is an important feature though, so I am not sure what the scheme itself can do.

I believe it's a criminal offence to refuse to return a payment that was made erroneously, and in most I cases, I suspect misdirected payments happen when a consumer selects the wrong beneficiary from a list of those they have previously paid (hence, they should show know who the money has been sent to). Given our sort code and account number cross-validation, it's unlikely that payments are sent entirely at random to the wrong place. Increasing the uptake of PAYM would also help.

The fraud point is very valid though - I wonder how many banks are fraud checking their *inbound* payments (in real-time, as part of the Faster Payments authorisation, not as part of an after the fact AML check)? This could be used to block access to an account where an unexpected large payment has been received, especially if it is from a new sender.

Equally, online and banking channels could be enhanced - for example displaying more confirmation details of where funds are being sent, and potentially requiring an out of band authentication via SMS delivered confirmation code. This might help with the problem of vishing

It would also help if banks were more willing to follow up fraud. Having been the victim of card fraud several times myself, my experience has been that the banks simply reimburse the defrauded sender if the transactions do appear to be fraudulent. At the same time, the Police seem unwilling or unable to do anything, and once the sender has been refunded they seem of the opinion that you are no longer a victim of a crime and that the bank has the responsibility to report it! Even having been supplied name and address details of the party that fraudulently used my card, the banks simply repaid me and did nothing!

 

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job title Payment Solutions Lead
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member since 2013
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Richard Ransom is Aggregator Solutions Lead at Bottomline Technologies. He is a subject matter expert on Bacs, FPS, SEPA, SWIFT based payments, access to payment systems, and financial document automa...

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