Making Faster Payments work

Props to Andy for making this excellent observation.  

In my very early stages of involvement with FPS at a Top 5 UK Bank, I'd wondered why the bank hadn't thought of a product around FPS. I was told that implementing FPS was fraught with several challenges, so the bank would like to focus on completing the implementation first instead of frittering away its energies in marketing it. At the time (around Feb. 2007), this seemed a sensible, if conservative, approach.

However, now that we're approaching the third anniversary of successful launch of FPS in May 2008, the lack of a market-facing product around FPS does seem like a great opportunity missed. Not only can such a product be a rich source of additional revenues but, if packaged appropriately, it could also deliver tremendous competitive advantage to those banks who have spent millions to implement FPS completely.

Absolutely valid point Andy.

VocaLink has a great product in FPS, and it is easy to see why the implementation of the full service was prioritised by the big banks.

However it was clear at Sibos 2010 (I delivered a cloud keynote and led a cloud innovations stream) that priorities in 2011 would be led by leverage of a mobile, and where possible cloud platform. 

As the architect of the payment engine for the original BACS Service, I will be intrigued to see whether as you predict, competition will indeed dictate the next steps. 

Well said Andy - my sentiments exactly - it's about time someone drew attention to the strange saga of Faster Payments and the curious behaviour of the UK banks.

First they needed to be pushed into developing a real time credit transfer system despite the fact that the market had been crying out for it for years.  Then they developed a really sensational, world-beating product in the form of Faster Payments - I've blogged before about what a revolutionary step forward this is.  But then they can't get their act together to implement it in a coordinated fashion, and they don't tell anyone about it.  No branding, no marketing, no development of added value products, certainly no selling, since somehow they decided to give it away for free.  Very weird.

Online banking customers must be very confused.  To give an example, if you pay your taxes by direct credit, then you might assume that if you pay on the "due date", HMRC would be credited on that date, especially if you are used to routinely making same day transfers to family and friends.  But oh no, turns out the small print requires that you allow 3 to 4 working days, presumably because HMRC's bank doesn't support Faster Payments.  How crazy is that?

Are we allowed to name and shame on this site?  As Andy implies, it seems unfair that the leading banks are being constrained by a few laggards.  I'm surprised this hasn't yet been raised as an issue by the mainstream media.

Andy's article is very insightful and thought provoking and really deals with two separate issues and therein lies the FP problem.

On the one hand FP was introduced to allow faster payments? VocaLink did an excellent job of that and the banks by and large have implemented FP and it thrives albeit as an enabler rather than as a product.

I work with most of the banks and know for sure that they all have FP products but mainly through their eBanking products.

So job done as far as the scheme objectives are concerned and a big thumbs up to VocaLink, including Andy. 

On the other hand FP is talked about as an opportunity to charge new fees to customers for a faster service.  But, that was what FP was supposed to be, a faster service.  It might be faster, but it is kind of expected these days that it would be.

There are numerous articles published that on the one hand talk about FP replacing CHAPS or on the other Bacs, the point is that the Payment Council is unclear as to what FP is supposed to provide in a scheme sense.  Does it compete with existing schemes or replace them?

If you are a bank and you are talking to a customer about payment methods, the three main domestic ones are FP, Bacs and CHAPS.  It is unclear what the industry expects; will FP replace them all, will they morph into one or will they continue to compete.  DCA has helped but it is expensive for the bank to set up and until VocaLink lower this cost I fear take up will forever be low.

The biggest confusion I find in the the industry is the lack of understanding that FP is an inter-bank product.  Intra-banking has given immediate payments for some years now.  So if you want to transfer money from your bank to another you'd use FP, but only if you can't deliver a file of payments to each bank for processing by them and nowadays you can easily.

I fail to see how the bank's can package FP as a revenue earning product whilst the industry, led by the Payments Council is unsure of where it fits.

The answer is in the bank's hands as Andy says, but the question is yet to be formulated; but I don't think it's just about how much more revenue we can squeeze from the poor corporate.  He's looking for cheaper services.

Faster Payments in itself is just that, faster payments; and why would I pay extra for that?

@Nick: While I agree with your point about unfairness, banks might not always be responsible for the FPS non-reachability problem, which occurs at the level of sort code of the specific account.   

Just before FPS go live, I remember a large UK TELCO requesting a Big 5 UK Bank - one of the FPS leaders - NOT to enable the sort code of its collection account with this bank for FPS. From what we heard, it wasn't as though the TELCO didn't want to enjoy its money earlier but realtime receipt would have apparently wrecked havoc on its collections process because its legacy 'sweeping' software was programmed to start checking for receipt status only 3 days past the date of payment initiation. As a result, customers of the TELCO were forced to initiate their payments 3-4 days before their bill due date, like in the pre-FPS days, although the bank in question was not a laggard. 

@John: Retail and corporate banking customers in the UK pay hefty fees for CHAPS realtime transfers. Likewise, in the USA, they pay a few dollars fees for Expedited Payments, which is only same-day. Given that CHAPS and Expedited Payments simply transfer funds faster, it is not far-fetched to expect people to pay for FPS, which has a theoretical SLA of 2 hours but often executes the transfer nearly in realtime.  

A couple of years ago, another leading bank was planning to launch a product for realtime cross-border incoming remittances into the UK. While paucity of space does not permit me to get into full details of this product, suffice to say that it was going to use FPS for the UK leg of the transaction, and that it had a far greater value proposition as compared to Western Union / MoneyGram transfers that cost more and take hours. I haven't heard much about this product in recent times, though.

In defence of bank marketing departments, I don’t think lack of determination is the issue with Faster Payments. This is a prime example of what happens when change is mandated centrally, rather than based on a commercially viable product or consideration for what consumers really want – just like SEPA. So yes, whilst it’s fair to criticize the ongoing emphasis on interest rates in consumer campaigns (though see Metro Bank for a different focus), it is hard to see why a bank would invest in marketing Faster Payments when they struggled to make the business case to implement it in the first place, when the benefit to most consumers most of the time is negligible, and when there’s no fee income.

Instead of asking our banks to divert effort into promoting Faster Payments, we should be listening to customers and creating a real vision for consumer-driven payments.

Faster Payments was focused on speeding up UK payments, which at the time was the slowest process in Europe and beyond. It probably cost the industry £900m, albeit much of that was spend on backoffice systems and processes which were heavily outdated and in dire need of upgrading anyway. It was partially, to eliminate the so-called float from which banks were allegedly making vast profit at the consumers expense. Actually this didn’t hold true for most payments processed by BACS – as the debit and credit occurred on the third day – but arguably consumers get to keep their standing order funds a day or two longer. For a typical consumer that adds up to….maybe enough for a ringtone?

If it had been designed using mobile technologies - instead of legacy ISO 8583 - it might have been more attractive, internationally and also domestically.

Internationally, it would have been great for those countries which lack effective domestic clearing systems, but where there is massive market adoption of mobile phones – and hence perhaps generated a return on the investment.

Domestically, it would have naturally been available on the one device almost certainly to hand when I need to make a payment urgently. Given that it was intended for online and phone based (not branch based) banking, basing it on mobile phone – which can do both, 24 x 7 - seems a no-brainer.

Furthermore, as the market research at the time clearly showed, consumers were prepared to pay a fee to make mobile-based payments, as they are used to paying fees for making phone calls and SMS – whereas they expected online and phone banking to be free. If it generated transactional income, marketing budget might be easier to justify.

Perhaps, having overcome the inertia of free banking, consumers might well have been prepared to opt in to paying for other services - the cost of an SMS to alert me that my salary had reached my account, or that a cheque had cleared.

Yet we still don’t have a national mobile payments scheme – though perhaps the cheque replacement programme will revive that idea.

As it is, as I discovered recently, I can't make an FP from the branch of a high street bank - it's either £25 for a CHAPS, or 3 days wait. I only tried as I can't do it from my online account either, despite being banked with one of the big 4. But this was the first time in a couple of years that I’ve needed to. Mostly my payments are predictable.

In the UK, ‘Faster’ is already being superceded. Vocalink have been marketing their ‘immediate payments’ service for some time. Payo (the UK version of the Dutch IDEAL, which has enjoyed massive market adoption) is planned.

Usually, payments don’t need to be fast. Occasionally they do, but the costs of delivering immediacy escalate quickly. On the whole, payments need to be transparent, safe, assured, and above all, low cost.