Happy Birthday? The strange case of Faster Payments
According to a Payments Council press release on May 27 celebrating the third birthday of Faster Payments, 82% of all online and telephone banking payments and 64% of standing orders are now processed through the service, amounting to 1.6 million payments per day, to a value of £600 million, a doubling of volumes in the last year. The Council is right to trumpet this achievement. Faster Payments is a superb payments service, and a huge leap forward for UK bank customers. Like millions of other people, I pay all my regular utility bills electronically using direct debit “pull” payments. For everything else – funds transfers to family members, payments to friends, membership subscriptions, income tax and VAT payments – I use online banking for direct credit “push” payments, which in the vast majority of cases go by Faster Payments. Three years ago these payments would have taken 3 days to clear. Now they usually take minutes. The service is not only extremely fast, but also highly convenient, reliable, and perhaps most incredible at all, it’s completely free!
But there’s a dark side, which does not reflect well on the banks. For a start, Faster Payments wasn’t their idea. On the contrary they had to be forced, kicking and screaming, to develop the service by the government following the Cruickshank report in 2000. Let’s be clear about this, the payments schemes responsible for developing, delivering and managing Faster Payments – the Payments Council (previously APACS), together with CHAPS and Vocalink – emerge as heroes in this story. The system is technically excellent, was developed in record time, and actually exceeds the original government target of a half day clearing time, with access to funds within a couple of hours of any payment being made, and allowing payments to be sent 24 hours a day, 7 days a week. But adoption of the service by the individual banks was patchy following its launch in May 2008. A couple of years later several banks were still not offering the service and those which did often applied limits to the amount which could be transferred. This was hugely confusing to consumers and led to much criticism and bad publicity. To add to the confusion, Faster Payments as a “brand” has never really been explained to the general public or promoted by the banks. The problem for online banking customers is that depending on the identities of the payer’s and payee’s bank, and the amount involved, the payment may be credited more or less immediately, or may take three days to be cleared. I mentioned above that I pay my taxes by direct credit, but quite recently I was being taken to task by HMRC for a “late” payment, made electronically on the due date, which was not cleared by HMRC’s bank for 3 days.
To someone with a background predominantly in the card payments world, this is all rather strange. We are used to highly competitive, well defined, global payment brands, where the consistency and reliability of the consumer payment experience is taken for granted, and banks offering the brand are strictly policed. Love them or hate them, there is no doubt that the likes of MasterCard and Visa operate superb payment schemes which are highly innovative and responsive to consumer needs. Moreover, speaking now as a payments industry representative rather than a consumer, I can’t help but applaud the fact that, unlike non-card payments, the banks actually make money out of card payments!
Things may be about to change for Faster Payments. The Payments Council published another press release on May 27 reminding us that as of January 1, 2012, the European Payments Service Directive will come into force and a one day clearing cycle will apply to most electronic payments. This will effectively force any remaining recalcitrant banks to use Faster Payments for direct credits. Perhaps this will be the opportunity for the UK banking industry to finally embrace Faster Payments and develop it into the strongly branded platform for profitable innovation which it surely deserves to become.
Nick Collin, Banking Automation Bulletin, July 2011