Among the several European countries which have already developed a national instant payments scheme, the UK is one of the most advanced, with over 125 million instant transactions each month (based on the credit transfer instrument). While the ’s Instant Credit Transfer ( Inst) scheme will enable instant euro credit transfers from 21 November onwards, we interviewed Craig Tillotson from the UK scheme Faster Payments to learn more about the UK experience. Risk management and compliance in an instant environment, popular instant payment situations, and the shift to an immediate world are the topics discussed in this interview.
Q. With its launching date going back to 2008, the UK Faster Payments scheme has been a frontrunner in instant payments. Can you briefly explain the key characteristics of the scheme, its challenges and evolution over time?
Since its inception, Faster Payments has been dedicated to improving the consumer experience when it comes to making payments. The concept was simple – find a way to allow customers to complete payments on the same day they made them; Faster Payments went further than this to offer a world leading real-time payment service for the general public twenty-four hours a day.
One challenge we have faced has been the subject of ‘access’ – making sure that payment service providers () of all shapes and sizes have a level playing field in accessing our service. To meet this need, in December 2014 we published A Vision for a New Access Model, a whitepaper with a plan for a new way to connect to Faster Payments.
Bilateral discussions between Faster Payments and candidate revealed clear demand for access to Faster Payments in two broad segments: Immediate / Real Time, and Same-Day (Value-Dated) payments. Our engagement with service users has played a vital role in helping us to successfully lower barriers to real-time payments for a range of challenger banks and – increasingly – non-bank . The number of Faster Payments participants has now almost doubled from ten to 19, with this number set to increase significantly during 2018.
The increase in participation will include non-bank using our new sponsorship model, and, in due course, institutions using the Bank of England’s non-bank settlement account access option. The expansion of direct participation has extended the reach of true real-time payments to many more customers.
Another key feature is of course speed. 96 percent of payments for directly connected are delivered in seconds, although the exact speed depends on your bank.
The demand for real-time payments is clear. Over 125 million transactions take place every month and you can currently send up to £250,000 in one transaction.
Independent research commissioned by Faster Payments predicts the size of the UK real-time payments market is likely to almost treble in the next five years. We live in a digital smartphone age where consumers and – increasingly – businesses expect everything to be instant, 24 hours a day, seven days a week. It will become more and more important for payment providers to be able to process payments instantly, safely and securely. Our work on access lays the foundation for the continued growth of our world-leading system.
Q. One of the concerns who are preparing for the Inst scheme report is the risk management and compliance aspects of instant payments. How do Faster Payments at scheme level and its participating banks deal with this?
When Faster Payments was launched in 2008, the service specification was designed to offer a two hour time window so that our participant banks could carry out the relevant checks that are needed to ensure risk is averted. As demand for real-time has evolved the that offer Faster Payments have increasingly looked to offer true real-time payments to their customers – simply to meet expectations. This has driven backend fraud systems and software to improve, with many key checks carried out more quickly through automation. Each participant bank will have its own risk checks set up, but they generally include both an automated stage which triggers a manual stage for any risks that are flagged initially.
Q. For which payment situations is Faster Payments mostly used?
In June 2017, Faster Payments processed 135.7 million payments, which is a 15 percent increase on the amount processed the previous year. These payments amounted to a total of £115 billion for the month.
Faster Payments is so widely used now that it is hard to pinpoint a particular payment situation that stands out as the most popular. Faster Payments has no set customer types as it has been designed to cater to all different types of consumers.
A transaction type which has increased in popularity recently is for used car sales payments; customers find it handy to be able to agree the sale and transfer the money there and then in real time so that the transaction is completed immediately.
Demand for the service is also growing amongst businesses; thanks to Faster Payments, a UK high-street retailer could be able to eliminate the need for its store room, converting it into expanded showroom space. When a customer in the showroom makes a purchase and pays, the retailer orders the hi-fi equipment on the spot, and pays their supplier via Faster Payments. Since the supplier has immediate receipt of the funds, shipping of the order is initiated immediately, for delivery the same or next day direct to the retailer or to the customer.
The retailer is able to eliminate the need for stock – freeing up working capital, while the customer benefits from fast and efficient service, greater choice through a larger showroom with more models and better prices due to the retailer’s lower costs.
Q. Finally, based on your experience in the UK, if there were one advice you could give to European getting ready for Inst, what would it be?
Although your focus will be on how you connect to central infrastructures and systems you need to think about all the implications for your systems, services and customer propositions. Real time payments beget real time banking – are you ready to offer real time banking?
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