High Level Proposal, Decisions and Timescales

The government has been concerned for some time that there is not a quick way of getting money to another party electronically other than via the expensive CHAPS payments system, which is not the appropriate vehicle for low value person to person or business to business payments.

The banking industry acknowledged that with the growth of internet and telephone banking there is a gap in the range of payment options.

The banking industry has agreed to introduce a new same day payments capability for these types of transactions and standing orders. Direct Debit and Direct Credit Scheme transactions do not incur float (even though they are a three day cycle payment) so the motivation for including them in Faster Payments was a lot less. Furthermore the 60,000 Direct Debit originators in the UK do not want to change their software so this will remain on a 3 day cycle. Companies submitting files of payments directly to BACS (e.g. payroll bureaux) also do not incur float even though their credit payments are part of a 3 day cycle. Again as there are many such companies these payments will not change to faster payments either.

The key design decision the banks have taken at an industry level is to go with a "transaction/near real time" based approach as opposed to a "file of interbank transactions several times a day" based approach. The former is clearly oriented towards the internet banking/telephone customer and is more intuitive, "you click the button and the money disappears from your account and normally appears in the recipient's account in near real time."

The system will be net settlement between banks and so to limit interbank settlement risk the size of individual transactions will have a cap (e.g. of the order of £10,000 for one off payments, a larger limit for Standing Orders). This cap is required to mitigate fraud and settlement risk. When this transaction based approach is applied to Standing Orders the remitting bank will have the option to change the output from their Standing Order systems from a file of payments to a stream of individual transactions.

The 12 months from January 2006 should have been used to build the systems, both the central infrastructure and also the (significant) modifications to the banks' own systems. Many of the smaller banks are off the pace in this respect.

A large part of the time leading up to launch in May 2008 will then be spent on industry level testing and customer communications. Further functionality and other banks will come on board in this time.