VocaLink and PricewaterhouseCoopers have published a detailed research report into the UK Faster Payments Service. The scheme has processed 262 million payments since going live on May 2008 - lower than originally projected by this stage - but by 2018, the targeted end-date for cheques in the UK, the Payments Council estimates that annual volumes could reach as high as 2.51 billion.
The new report, which is targeted at international banking communities that might be interested in emulating the UK's adoption of Faster Payments, is based on Payments Council modelling and qualitative research interviews with scheme participant banks.
As well as the end of cheques, the report authors say they expect that many corporate payments under £10,000 currently processed by the Chaps RTGS system will migrate to the FPS, further boosting volumes that will rise as reach is improved.
Two-thirds of banks interviewed were very positive that FPS could deliver new revenue streams, with potential revenues identified in the business-to-consumer segment reaching £2.9 billion by 2018 and £1.9 billion in the business-to-business space.
Some banks interviewed said they though that the industry had "missed a trick" in going with zero charging for consumers. But as part of the current review into bank charges in the UK, some thought this might change. Additionally, changes like relaxation of the £10,000 transaction limit, or introduction of mobile payments, could also generate consumer sector revenue opportunities.
Banks were generally more optimistic about revenue potential in the corporate sector, particularly with the introduction of Direct Corporate Access in June this year.
Among banks interviewed, those who are helping businesses to integrate Faster Payments within existing business processes say they are already showing revenues that exceed costs, and are predicting an early payback. ‘We have a three-year payback on the investment’ observed one of the bank representatives.
The report says FPS now has reach to 80% of bank branches in the country. But some banks and building societies have yet to fully implement, which means not all sort codes are accessible by the system. This lack of total reach makes it difficult to widely promote the scheme to consumers, and in fact a consumer survey conducted as part of the report found that 67% of UK consumers were unaware of Faster Payments.
In looking at lessons learned from the UK participants, the research says that banks which have already invested in modern real-time accounting systems will find it easier to implement and operate faster payments than their counterparts with old legacy and batch-based systems. However, those banks with legacy systems will find that real-time payments provides a much-needed incentive to re-architect their transaction banking platforms to cope with the demands of the modern payments world.
The report concludes that many challenges around managing the risk profile of a 24-hour real-time payment system have been addressed. But it says that industry policies about the recovery of irrevocable payments remain a challenge.
Martin Wilson, chief commercial officer at VocaLink, comments: “The analysis dispels some of the myths and tells the facts about Faster Payments. Operationally, banks have had to implement Faster Payments alongside other instruments, incurring new, fixed costs. Significantly, however, some banks are already able to point to areas where improved business models are leading to a reduction in operational costs, most notably in the areas of exception management. The completion of these final steps takes Faster Payments from infancy to maturity, and as it approaches its adulthood, FPS is beginning to earn its living.”» Download the document now 2 mb (PDF File)