As the business world increasingly operates in real time, consumers expect the same kind of fast, convenient services from their financial institutions that they receive from retailers. In the U.K., the response to this demand is the Faster Payments initiative. According to some experts, the program may have a far-reaching impact beyond the shores of Great Britain.
Faster Payments is designed to allow people to make same-day electronic payments of their bills. The program is aimed at low-value payments of about £10,000 (or US$20,000) or less. It was born of a working group formed by the U.K.'s Office of Fair Trade (OFT) that included input from retailers and other businesses, consumers and banks.
Alan Koenigsberg, VP for global in-country and ACH treasury services with New York-based JPMorgan Chase ($1.2 trillion in assets), says U.K. consumer-to-business electronic payments typically take three days to clear via the BACS system, the U.K.'s automated clearing house. There was little movement by U.K. banks to streamline the clearing process, however, until 2000, when an independent report commissioned by the government was issued, he adds. The report found that most of the enhancements made to the country's payment system had more to do with risk and cost reduction than with improving customer service.
"The bank product managers were defensive about this at first because they didn't think there was any competitive advantage in changing the clearing cycle," Koenigsberg contends. "But the banks came around, especially on the consumer-to-business side."
The OFT task force developed a framework that eventually morphed into Faster Payments. "This is a hybrid payment method because it's a card-based ACH system -- the payments run on the card rails," explains Koenigsberg. As such, U.K. ATM network operator VocaLink (London) plays a vital role in Faster Payments. "This is leveraging card-based technology on top of ATMs, the Internet and, eventually, point-of-sale devices," Koenigsberg adds, noting that the combination of technologies and channels results in faster cycle times.
Although it is being used to optimize consumer channels, it is likely that Faster Payments will move into the business-to-business payments space over time, according to Koenigsberg. "If the minimum limit on payments is raised, Faster Payments could take volume away from CHAPS [the U.K.'s same-day high-value payments system]," he says.
'A Big Build'
Actually implementing Faster Payments, however, has been a challenge. The initiative was set to go live this November but is now being delayed until May 2008.
"For U.K. banks, this is a big build. They're building a new channel that impacts their client-facing front ends ... and their back office because they have to build new payment and settlement instruments," Koenigsberg explains. "But there was a bit of future-proofing here -- by building such robust systems, banks won't have to do so again for several years."
Once the final hurdles are left behind, Koenigsberg opines, Faster Payments will serve as a model for the rest of the world. "This model would be fabulous for SEPA," he asserts. "You can build a fantastic euro-based Faster Payments service. ... I think Faster Payments will be a beacon of change for other markets."