To Grow the UK Economy: Accelerate Instant Payments

The EU Directive on Instant Credits is set to take effect in October 2025. By reducing payment processing times from days to mere seconds, EU countries are projected to see their GDP increase by 1 to 2%. The efficiency gains from Instant Payments, where funds are immediately available for reuse, create a compounding effect that accelerates economic activity.

The UK’s Position: A Risk of Falling Behind

The UK once led the world with its Faster Payments system, introduced in 2008. However, while the rest of Europe is actively modernising its payment infrastructure, the UK’s implementation of the New Payments Architecture (NPA) has faced delays since 2017. This stagnation risks placing the UK at a competitive disadvantage compared to the EU’s aggressive push for instant payments. The US, in 2024, initiated faster payment activities.

Economic forecasts further underscore this concern. The UK economy is expected to grow by just 0.75%, down from a previous estimate of 1.5%. The Bank of England has cut interest rates to their lowest level in over 18 months, reflecting slower economic growth. Meanwhile, Faster Payments grew by 15% in 2024 and are expected to overtake BACS (the UK’s 3-day payment system established in 1968) by 2026. Despite this growth, the lack of a cohesive, modernised approach to instant payments limits the UK's full economic potential.

The Impact of Instant Payments on GDP

Instant payments drive economic growth by increasing the velocity of money. In the UK, payment volumes and values across different channels in Q3 2024 illustrate the dominance of faster transactions:

With the UK’s quarterly GDP standing at approximately £639 billion, leveraging instant payments more effectively could drive significant economic gains. Delayed payments slow down capital reinvestment, reduce business agility, and create inefficiencies hindering growth.

International Comparisons: The US and EU Moving Ahead

• EU: The new directive mandates that instant payments be standard across all member states, ensuring liquidity flows faster and increasing economic efficiency.
• US: The Federal Reserve’s FedNow service, launched in 2023, has set a $10 million (£8 million) per transaction limit, significantly higher than the UK’s current threshold. 
• UK: When FPS increasing its limit to £1 million, at least 50% of transactions using CHAPS could be redirected. Increasing the amount on Faster Payments to meet outside competition would reduce CHAPS volume further. However, failure to act swiftly on the long delayed NPA means the UK risks losing its historical leadership in payment innovation.

Fraud and Regulation: Addressing Barriers to Adoption

One of the key concerns with instant payments is fraud, particularly in the form of Authorised Push Payment (APP) scams. The Payment Systems Regulator (PSR) has responded by introducing a reimbursement framework of banks sharing liability. From October 2024, scam victims will be reimbursed fully, with the payer’s bank covering 50% of the loss and the payee’s bank covering the other 50% up to £85,000 (over 90% of the total scams).

The EU, by contrast, places full responsibility on customers for fraud losses, a stance that could impact consumer confidence but reduce bank liability. In the UK, fraud-related losses in the first half of 2024 alone amounted to £570 million, underscoring the importance of robust regulatory protections as instant payments become more prevalent.

Opportunities for Growth and Innovation

Retail and Consumer Benefits

• Immediate access to funds encourages higher spending and economic circulation.
• Retailers benefit from reduced interchange fees when customers use bank transfers instead of credit cards.
• Open Banking enables seamless transactions via APIs and mobile applications, bypassing traditional banking infrastructure.
• Instant payments can help eliminate late fees and overdraft charges, improving consumer financial health.

Corporate Advantages

• Instant payments can tackle the UK’s late payment problem—on average, invoices take 54 days to settle, constraining business cash flow.
• By reducing settlement times, companies can reinvest capital more quickly, leading to greater efficiency and productivity.
• Fraud risks remain high in corporate payments, but real-time monitoring and AI-driven analytics can enhance security.
• Banks and Payment Service Providers (PSPs) can introduce tiered pricing models for instant transactions, generating new revenue streams.

The Next Frontier: Instant International Payments

The true game-changer lies in cross-border instant payments. While complex, early initiatives are already emerging, with potential benefits including:

• Faster international remittances at significantly lower fees (30% cheaper than traditional remittance services).
• Revenue generation through FX conversion fees and cross-border transaction charges.
• Enhanced transparency and security by verifying bank account ownership before transactions are processed.
• Identiying scammers and mules across borders through bi-lateral agency agreements 

The UK’s Urgent Need for Action

Despite its strong financial sector and history of innovation, the UK is at risk of losing its competitive edge. The delay in rolling out the NPA could see the UK fall behind the EU and other global players in payment innovation. To stay competitive and drive economic growth, the UK must:

• Expedite the implementation of the NPA.
• Increase the FPS transaction limit to £8 million or more to match the US.
• Enhance real-time fraud detection and consumer protection frameworks.
• Encourage businesses to adopt instant payments to reduce invoice settlement delays.
• Foster global partnerships for seamless cross-border instant payments.

With the right policies and investment, the UK can reclaim its leadership in financial innovation. Instant payments are not just a convenience—they are a catalyst for economic growth. The faster money moves, the faster the economy grows.

By accelerating instant payments and removing delays in regulatory implementation, the UK can unlock new economic opportunities and prevent falling behind in the global financial landscape.

Sources:

1. BBC: UK Growth Projections
2. ONS GDP Data
3. UK Finance Fraud Report
4. Finextra: Rise in Online Fraud