These are questions that should help staff in large corporates (particularly their Treasury departments) to get up to speed with faster payments.
Large Corporates are not obliged to change anything much when it comes to making payments (although they may want to change to using Faster Payments - see "why would a large corporate want to make a Faster Payments " below)
When it comes to receiving payments Large Corporates may be obliged to make some changes. This is because Large Corporates are the recipients of many of the internet/telephone banking payments that are converting to Faster Payments, (e.g. utility bill payment templates on internet banking screens). This will be particularly relevant in sensitive situations such as debt recovery.
Currently, many of these payments are routed via the 3-day BACS processes into "collection" accounts for the Large Corporate. For a variety of technical factors too complex to explain here, the reduction from 3 day payments to same day/real time Faster Payments will mean a change in the treasury department and a/c receivable departments of many large Corporates. For more detail, contact us.
We don't believe Large Corporates will want to migrate the bulk of their payments processing to Faster Payments (e.g. payroll is unlikely to move). However, we do think certain types of payment may well go that way; examples would include.
Basically any situation where the immediacy, certainty and/or the out of hours nature of Faster Payments is important.
In some cases Corporate may benefit from receiving cash two days early (particularly those who receive standing orders).
For a Large Corporate the main features of planning for Faster Payments are
Obligatory; develop new processes to deal with incoming Faster Payments in conjunction with your bank (probably involves IT and testing with the bank).
Optional; develop new processes to make Faster Payments (probably involves IT and testing with the bank).
For handling incoming payments, the Large Corporate will have to use a service provided by the bank (e.g. a collection account service or current account service). This is likely to be a mostly batch/file based service. In addition some large companies, particularly Telecoms companies, may find a real time service from the Central Interbank Infrastructure of use.
For making outward payments, Large Corporates will be offered forms of internet/electronic payment interfaces to make payments by their bank(s). In addition it is expected that a file submission service similar to the BACS direct submission service, called Direct Corporate Access (DCA), will also be available to large Corporate customers.
How does Faster Payments Compare with BACS?
BACS is a scheme for moving a number of different types of payments between banks (and large companies). Faster Payments will replace some of the payments currently run over the BACS scheme, specifically
It does not replace all BACS payments by any means. Specifically;
Where a payment was made by BACS and now uses Faster Payments the most noticeable difference is the speed. BACS payments take 3 days to process (from instruction being sent to the beneficiary receiving cleared funds). Faster Payments will be either Near Real Time or Same Day depending on the payment type.
Are There Different Types of Faster Payments?
Yes. From the payer's point of view there are three types of payment instruction.
Faster Payments treats these types of payment differently.
Why Are Faster Payments Being Introduced?
The principal reason is that the UK banking industry feels that a low value, high volume, 24 x 7, real time payment system will become an important part of the economy of the 21 st century. As the world we live in increasingly becomes 24 x 7, an electronic payment system that reflects that speed and availability is important. By introducing this payment system the banks hope to gain income directly from payment charges and indirectly by making the UK an attractive place to do business and so gaining from a growing economy.
A secondary reason is that the banks will use the new payment system to replace those payments which currently incur float. (Float is where paying customers are debited on day 1 but the beneficiary is not credited with the payment until day 3; the banks thereby earn two days interest on the payment). Float is a legacy of the older BACS payment systems for inter bank payments and has been an issue with the banking regulators for a while.
Finally, the UK banks believe that a thoroughly modern payment system will place them well to win payment processing business as the Single European Payments Area (SEPA) develops.
What Currencies Are Supported?
This is a GBP (£) only system. Payments can only be made in sterling to and from UK bank accounts. (The scheme has been designed to be easily extendable to other currencies in the future, e.g. the payment message has a currency field which at launch will always be GBP)
Why Would a Customer Use a Faster Payment?
Firstly some customer payments may be automatically converted to Faster Payments "behind the scenes" on the customer's behalf. For example, those that currently incur float might convert to Faster Payments. These include
Beyond this set of changes different features of Faster Payment may appeal to different customers; possible examples might include:
Are All Banks In the Scheme?
Eleven banking groups (Barclays, HBOS, HSBC, RBSG, Lloyds TSB, Nationwide, Alliance & Leicester, Co-op Bank, Abbey, National Australia Bank, Danske Bank Group) have committed to implement the scheme. Between them they represent 95% of the payments made in the UK. The other banks and building societies will be making decisions on how, when and if to join the scheme over the next year or so.
When Will Faster Payments Be Available?
The Banking Industry via APACS has committed to launch the scheme in November 2007
How Much Will Faster Payments Cost?
Charging for faster payments is a commercial matter that will be determined by market forces. There is an expectation that given the payments initially being replaced are part of the BACS interbank scheme (i.e. high volume, low value) that the market pricing will come out much closer to current BACS payment pricing than current CHAPS (low volume, high value) pricing. Thus one might reasonably expect the price to be measured in pence (as for BACS today) as opposed to pounds (as for CHAPS today).
How Does Faster Payments Compare with CHAPS?
There are a number of general characteristics that are the same between CHAPS and Faster Payments.
However, there are some important differences
Settlement (this is a complex point but leads to the next line.
This is difficult to forecast but in principle it should be easier and cheaper to move money around fast. Hence a customer of a bank with a low/zero interest paying current account can move money into a high interest bearing account with another bank one day and send it back the next with no loss of interest. Currently such a transaction would take 6 days (as a minimum) to transact during which time the funds involved would get no interest. Hence it would seem logical that banks that compete hard for savings may well offer Faster Payments to make it easier for customers of big clearing banks to move money out of their non interest bearing accounts.
How does Faster Payments related to SEPA and other Payment Initiatives?
Faster Payments and SEPA are completely different projects and schemes;
