These are questions that should help bank staff deal with customer enquiries or bank staff who are new to the bank's Faster Payments project get up to speed with Faster Payments.
IT FAQ's (suitable for IT staff having to build the infrastructure to support Faster Payments)
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
Standing Order Payments
Internet Banking and Telephone Banking Payments
It does not replace all BACS payments by any means.
Specifically;
Direct Debits are unaffected
Direct Credits (where a company sends payments directly to BACS not via a bank are unaffected - e.g. Payroll Bureau).
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.
Yes. From the payer's point of view there are three types of payment instruction.
Immediate Payments - These are payments that the payer wants to make straight away (e.g. an immediate phone transfer to my son at university a hundred miles away).
Diarised Payments - These are single payments with a date for sending other than today (e.g. an instruction to pay my credit card bill in a week's time).
Standing Orders - A Mandate for the bank to make a payment of a specific amount to a specific beneficiary for a number of future dates or on a regular basis indefinitely.
Faster Payments treats these types of payment differently.
Immediate Payment
Diarised Payment
Standing Order
When are they paid?
24 hours a day, 7 days a week (i.e. including Saturdays, Sundays and Bank Holidays) whenever the payer wants to make the payment.
In principle these can run 24 x 7 however, many banks may restrict them to the same changes/ times as Standing Orders.
These will be paid on bank working days. They will be scheduled to run between midnight and 6:00 am on the day of payment.
Amounts allowed
There will be a limit on the size of such a payment. The initial scheme limit will be £10K. Individual banks may impose lower limits for Fraud or Credit reasons.
The initial scheme limit is also £10K. There is no reason why this has to be the same as Immediate Payments limit.
This will have an individual payment limit of £100K.
Speed
The whole process from initiating the payment to getting the acceptance/rejection response from the other bank will normally take a few seconds.
Most banks will deal with Diarised Payments according to the same service levels as Standing Orders.
The payments will be made on the diarised date, and 95% or more will be paid by 06:00 on that date but no guarantee is made about an individual payment.
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.
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)
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
Internet and Telephone Banking Payments
Standing Orders
Beyond this set of changes different features of Faster Payment may appeal to different customers; possible examples might include:
Price
Low value CHAPS payments might be made via Faster Payments because Faster Payments would be cheaper; similarly credit or debit card purchases for high value items might lend themselves to Faster Payments as being cheaper for the seller.
Speed
Some company's customer services departments might want to refund money in "real time" to a customer's account. Urgent Benefit claims could also be paid into an account instead of giving out a Bank Giro or cash.
24 x 7
For example, transferring money at night or at weekend may be important in a weekend trading environment instead of cheques.
Certainty
Traders or individuals (e.g. a private individual selling a second hand car) can see in seconds if the money has arrived in their account by internet/phone banking and know it is irrevocably paid. There is no risk of a payment bouncing as with a cheque.
Twelve banking groups (Barclays, HBOS, HSBC, RBSG, Lloyds TSB, Nationwide, Alliance & Leicester, Co-op Bank, Abbey, National Australia Bank, Northern Rock, 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.
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).
This is a very broad question which will depend a lot on what type of staff in the bank we are talking about. We highlight three areas in particular.
Credit management - whether the customer is personal, small business or corporate there is a major speeding up of the payment cycle with Faster Payments moving payments from 3 days to Near Real Time (NRT) or Same day. Many banks use the 3-day cycle to make human and system based pay/no pay decisions. There will not be time using the current processing for these payments to be assessed. This will be a big change for most banks. However, the old processes will continue to be needed for those payments not migrating to Faster Payments (e.g. direct debits and cheques).
Payment Back Office work and Query Handling - This should be a major improvement as the near real time nature of the payments means that customers can seek near real time feedback on whether the payment has successfully reached the beneficiary account, hence eliminating lots of "where is my payment?" type queries. The payments being irrevocable will reduce the work associated with payment recalls.
Large Corporates and Agency Bank customer facing staff. - There are a number of special features and options within the Faster Payments scheme designed for large Corporates and Agency Bank customers. This will involve the relationship managers and support staff having to understand these offerings.
Will Large Corporate Billers like Utilities and Telco's be affected?
Yes. As companies receiving large numbers of payments from individuals and commercial companies they will have to change their Treasury and Accounts Receivable processes. This is because a large number of the payments currently made to these companies (e.g. Standing orders, internet banking payments and telephone banking payments) will convert to Faster Payments.
In addition these companies (and other large companies such as retailers) are high volume payers and there are a number of attractions to them to use Faster Payments for at least some of these payments. Click on the Large Corporate FAQs on the left for more detail.
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;
Faster Payments is a UK sterling only payments scheme, essentially for credit transfers
SEPA is a scheme covering payments in euros only in 25 countries, including credit transfers and direct debits
Faster Payments is a real time, message based service
SEPA is multi day cycle based
For a UK bank the SEPA project will affect different system components, customer propositions and business processes to the Faster Payments project. It will be a completely different project.
How banks settle is described in detail in the Chapter 11 of the FP functional specification. The abbreviated answer is:
There are one or more settlement cycles per UK banking day.
At the end of each settlement cycle each member bank has a multilateral settlement position calculated by IPL (the joint venture between VOCA and Link set-up to run the Faster Payments Scheme Infrastructure).
IPL passes the position to the Bank of England (BOE) which alerts the member that a settlement is about to occur.
The Bank of England credits/debits the member bank accounts with the amounts owed/owing. (The member has to ensure sufficient funds are on their account at the BOE to allow this to happen).
Various reports and enquiries are available online to members from IPL to allow the member to reconcile what they believe they have to settle with what IPL believe.
