Faster Payments (FP) scheme set to speed up business banking

Small businesses will be happy to hear that the time banks take to process payments is set to become a lot faster from today, with the launch of "Faster Payments". Phone, Internet and Standing Order payments will now be processed within hours rather than days.

To date, 13 banks and building societies have joined the FP scheme (equal to around 97% of all payments). Faster Payments is set to be rolled out in phases, and will sit next to CHAPS and Bacs the existing payment schemes.

You can read a good summary of FP on Wikipedia, and overview from APACS. You can also check your sort code to see if your bank or building society is participating in the Faster Payments scheme.

The Faster Payments scheme, which includes standing orders, is the banking industry’s response to Government concern that the UK did not have a low cost, quick and efficient electronic payment mechanism.

According to Deloitte, there is likely to be a considerable cost to banks in terms of cannibalisation of existing CHAPS revenues, and there will undoubtedly be risk issues, as banks will have to approve payments within a matter of seconds of receiving requests for funds.

Stephen Ley, a partner in Deloitte’s Enterprise Risk Services practice specialising in payments and retail banking said: “The Faster Payment system will be a challenge for banks which could lead to increased risk of fraud as it will be harder for banks to detect and block fraud in the time window available. The existing process relies, in part, on banks having sufficient time to detect suspicious transactions.

“Faster Payments can bring significant benefit to customers, businesses and banks as long as the risks are managed. The banks which successfully manage these risks will gain significant operational and strategic benefits.

“A number of banks have opted to issue card readers which work with their customers’ debit card to create a more secure authentication and authorisation process. With over 20 million customers regularly using internet banking, increasing online safety is clearly a priority.”

Businesses will welcome the introduction of FP as it will enable them to reduce the charges they incur on payments below £10,000 by moving from CHAPS, the UK’s Real-time gross settlement (RTGS) system, to FP. Currently the only way to make a same-day payment is via CHAPS, which is significantly more expensive than the three day Bacs payments system.

The introduction of new services based on FP may, in time, also be used by merchants and others in preference to credit card and debit card transactions.

When Faster Payments goes live transactions will be limited to £10,000 for immediate payments and £100,000 for standing orders, although some banks may choose lower limits. In time it is expected that these limits will be increased.