Faster Payments bring together a number of changes which in their totality mean substantial change to Credit Processes, policies and systems.

• Irreversible Payment decisions potentially worth thousands of pounds a time may have to be made at night or at weekends.
• Many payments that were managed as part of the overall 3-day cycle now become same-day or near real time.

The following questions should help Credit Management staff understand how Faster Payments affects them and their processes. For more information contact us.

What is an example of an effect on Credit Management of the move from 3 days to Faster Payments?

What is the effect on Credit Management of the 24 x 7 payment processing that comes with Faster Payments?

Are there any features of Faster Payments Credit Management specific to large Corporate customers and/or Agency Banks?

What is an example of an effect on Credit Management of the move from 3 days to Faster Payments?

To answer this, one needs to understand how banks use the 3-day clearing cycle for cheques and BACS payments in making decisions today.

First we need to see how the processing days work using an example starting on a Monday

With the advent of Faster Payments many interbank payments are no longer part of this 3-day cycle. A worked example illustrates a possible scenario; the table illustrates a today situation.

In today's world, this account would not be subject to any credit decision making as the account is not forecast to go overdrawn.

Under Faster Payments the Internet Banking payment would not arrive the day before (the Tuesday in this example) but would arrive on Wednesday during the day. The Tuesday night customer accounting would not know about it and so would produce the following calculation.

The customer's account would not actually go overdrawn on Wednesday night as the internet banking credit would arrive during the day to bring it back into credit. The problem for many banks is how to cope with the fact that their forecasts of Wednesday night balance and the decisioning processes that hang off them will need to be changed so as not to erroneously bounce the cheque.

This is one example of a possible change that banks will have to make to their credit decisioning processes but there are many other similar ones. They all have the same root cause, namely payments that currently take 3 days to process will become real-time or same day with the advent of Faster Payments. This means any credit process that is based on the three day cycle for these payments will be affected.

What is the effect on Credit Management of the 24 x 7 payment processing that comes with Faster Payments?

Banks today have some capability to make credit decisions 24 x 7; for example deciding whether to allow an ATM cash withdrawal or debit card payment at the weekend. The challenge that Faster Payments brings is that the values of the payments that can be made via Faster Payments will be much greater than the average ATM or debit card transaction. Currently high value payments would be made via CHAPS and this is restricted to normal bank opening hours. Alternatively, high value payments are made via BACS 3-day cycle payments and the pay/no pay decisions can be scheduled into normal banking hours.

This issue is further compounded by the industry's drive to schedule as many of the standing order and diarised payments transactions for the "wee small hours" of the night, shortly after midnight. In short considerable thought needs to be given to the trade-off between providing customers the flexibility to make irreversible payments 24 x 7 and the credit risks involved. Once this analysis has been completed, for example risk analysis based on the types of customer the bank deals with, it is almost certain processes and systems will need changing to cope.

Are there any features of credit management specific to large Corporate customers and/or Agency Banks?

Yes. The Faster Payments scheme anticipates offering large corporates and Agency Banks the ability to submit files of payments into the scheme clearly these cannot be real time (a file is inherently not a real time thing) but would be same day. The nearest equivalent today is the BACS file submission options for large corporates and Agency Banks. For BACS today the credit processes for authorising files of payments are based on limits stored on the BACS customer database. This is complemented by BACS' ability to refer limit breaches to the bank that sponsors the corporate by phone.

Faster Payments will require an automated pay/no pay decision on a file within seconds. Furthermore, insufficient funds would cause the whole file to be rejected automatically with no referral to the sponsoring bank. This is a very important difference.