Faster Payments: gearing up for the New Access Model

When I was involved in implementing FPS for a Top-5 UK Bank, we felt the same i.e. people want immediate payments. While FPS has gained momentum, I was puzzled to read recently that not only has it not managed to supplant BACS but BACS volumes have broken records recently.

Bacs busts 100 million payments a day mark

Keen on knowing your take on this.

Whilst I agree with the thrust of the article, the new access model really just hopefully opens up access to Faster Payments to a wider range of players. The rails are not changing and are the same ones that have been there since 2008, thus whatever will be possible come December was possible last year and the year before that. I am hoping that the new entrants into the market can do a better job of educating their customers, be they corporate or retail, about what is possible today. For some reason this seems to have been done very badly - take PAYM as an example, only 1.5 million transactions since go live and virtually no-one is aware of it.

I am sure that employers who were affected by the bank holiday weekend BACS problems would have been only too happy to have access to a realtime option. Knowing within a few seconds or minutes that employees wages had been paid successfully and being able to submit payments on the day they are due would I imagine attract an increasing number of business customers in the future should any bank or PSP wish to push this agenda. 

@DavidGodfrey + 1. Like I pointed out in my comment on Bacs busts 100 million payments a day mark, my employer switched to FPS back in May / June 2008 but most companies still seem to use BACS for payroll. This definitely signals a huge deficit in marketing by banks of their new products / services (or do they have some strong vested interest to maintain the status quo?).

The cost of a faster payment is still many times more than a BACS payment - therefore if you're sending funds in a scheduled fashion BACS makes more sense. 

To the point about volumes increasing, fintech (such as gocardless) is actually now making the BACS DD infrastructure available to more people (replacing cash/cheque for club subscriptions for example) and changes such as the DVLA allowing monthly car tax payments via DD also continue to drive volume.

@ChrisHigham: The VocaLink exec who responded to my comment on Bacs busts 100 million payments a day mark seemed to attribute the continuance of BACS to lack of support of Direct Debit in FPS. TY for clarifying that FPS is costlier than BACS. That makes more sense in explaining the longevity of BACS. (I was under the impression that FPS is free!).

For consumers it's free (and as a consumer you don't really get to make BACS payments outward except via DD anyway) - for business banking and for banks directly into the schemes there are cost differences between the schemes.  Don't forget as well that BACS isn't subject to the FP transaction value limit so for businesses paying large supplier invoices, etc you have to use BACS.

TY @ChrisHigham. That said, any idea what %age of BACS transactions below FPS limit have migrated to FPS?

While I think it's true that BACS volume increases may be due to the number of direct debits that the average customer now has, and people's acceptance of this as an alternative to sending a cheque, etc. I don't personally favour the idea of moving Direct Debits to Faster Payments but rather add to FPS an e-Invoice / Request for Payment capability that puts the consumer in control of making the payment and would presumably remove a lot of complexity in payment systems to support mandate processing and checking. Zapp would seem to offer what is required but, as with PAYM, the visibility to anyone who doesn't work in Banking or Fintech is virtually zero. Hopefully when Zapp launches properly the marketing effort will get cranked up significantly.

On the FPS cost side, I believe economies of scale must play a big part. As volumes increase on FPS it must be possible to bring the costs down. The new access model will play a big part in this regard by levelling the playing field and increasing competition in the space - the sooner everything is ready to go to support new Faster Payments members via the new access model, the better!

I'd also be interested to know what volume of BACS payments are actually for amounts above the Faster Payments scheme limit? There can't be a significant percentage of salary payments for example that are greater than £10K for example. Using the DCA option to submit bulk payments to Faster Payments still provides a window to screen payments / manage risk, so I don't believe it should be an obstacle to moving away from BACS.

Ketharaman, David, Chris - thanks for all your comments. You’ve highlighted some key issues here.

@Ketharaman Swaminathan, you mention that while FPS has gained momentum, it has not managed to replace BACS but instead BACS volumes have broken records recently.

BACS has broken records of late and will continue to do so for a while. Faster Payments is only seven years old, but it’s growing steadily 20% year on year, processing in excess of 100 million payments each month. We will start to see changes as banks begin to commit to the New Access Model and implement it during 2016.

@David Godfrey, you mention the need for educating customers about the Faster Payments and how economies of scale could bring costs down.

More awareness is needed, definitely, to inform and educate banks and PSPs about the benefits of the Real-Time Faster Payments New Access Model.  Once the popularity grows and corporates begin to see the benefits of submitting bulk payments to Faster Payments, it is likely that FPSL will consider easing the transaction limit.  

@Chris Higham, you’ve mentioned that the cost of a faster payment is still many times more than a BACS payment.

FPSL believe that costs of payments under The New Access model will be far cheaper than the current costs if more and more banks sign in to this model.

Hopefully the above helps clarify on some of the points raised? Do let me know if any other thoughts – or suggestions for future blog topics!