1. Developments in Faster Payments
Simon Brooks
Product Manager, Faster Payments Scheme Limited
September 2016

2. Laying the Rails for Innovation Access Summary of Key lessons learned
Faster Payments Service
UK Payments Landscape
Background
Settlement
Uptake
Scope of the service
Timeline
Laying the Rails for Innovation
Access
Summary of Key lessons learned
Questions

3. 1. UK Payments Landscape

4. 2. Background
A major infrastructure change, driven by regulatory pressure
Complex development , involving significant investment, revolutionising the UK’s automated payments infrastructure as a world-leading service
Enables mobile, internet and telephone banking & standing order payments to move fast and securely, almost at the touch of a button
Launched on 27th May 2008.  By the end of 2012 over 98% of phone and internet payments were being processed through Faster Payments

5. Implementation of Faster Payments
2. Background
Implementation of Faster Payments
Programme Activity
Delivery project ran from December 2005 to May 2008 (30 months)
Costs of the implementation
The figure was anywhere between £500m and £1bn
However this includes a lot of ancillary cost (upgrading of core accounting platforms to operate in real-time, for example), where individual banks allocated the cost of such “evergreening” activity against their Faster Payment project budget.
Cost of central build 10-15% of the total

6. 2. Background How does FPS work?
Remitting
Customer
Choice of service
Payment given to bank
Receiving bank
Beneficiary customer
Confirmation
of Payment
Bank Executes Payment
Sending bank 1 2 3 4 5 6 7 8 9 10 11
All of which takes place in anything from fractions of a second to days

7. System Design – Deferred Net Settlement System (DNS)
Immediate payments made between participants (< 10 seconds)
Irrevocable
Credit risk passes from end customers to customer’s banks
Multilateral Net Settlement 3x per working day, via Bank of England Real Time Gross Settlement (RTGS) system
Participant and scheme credit and liquidity risk managed via 100% cash collateral arrangements (Prefunding) – a defaulter pays model
Net Sender Caps contain risk transaction-by-transaction

8. 4. Uptake Service offering Payment types Monthly Volume Average Value
Single Immediate Payments (Synchronous)
74.3m
£790
Forward Dated Payments (Asynchronous)
14.9m
£1,846
Standing Order Payments (Asynchronous)
30.7m
£315
Total
119.9m
£799

9. 4. Uptake - Faster Payments monthly volumes (millions) 2008 - 2016
Greater value and volume than paper cheque and credit

10. 4. Uptake - Faster Payments monthly values (£billions) 2008 - 2016
Greater value and volume than paper cheque and credit

11. 12 directly connected institutions
8 *
5. Scope of the Service
12 directly connected institutions
400+ indirectly connected institutions
55m current account holders
115m individual addressable accounts
110m+payments processed per month
£250,000 transaction limit
£10,000 - £250,000 customer limit*
* Determined by risk appetite of each institution

12. 6. Timeline
August 2016 first new Participant to join the Scheme since the launch in 2008

13. 7. Laying the Rails for Innovation
Current Account Switch Service (CASS); real-time redirection of payments – delivered Autumn 2013
Paym – delivered April 2014
Overlay services – ongoing developments
Weekly payroll
Supply Chain Management – “just in time” stock management
Request To Pay – Ongoing project
New Access Model – First new Participant joined in August 2016
Aggregator Accreditation Programme

14. 7. Laying the Rails for Innovation
‘Just in time’ Stock management
Move from holding ££££s of stock to ordering as and when needed
Frees up working capital
Reduces need to discount surplus/obsolete stock
Reduces risk, so can reduce margins (or increase profit)

15. 7. Laying the Rails for Innovation
The 7:15 train
Mobile banking apps
More people using banking apps
Change in peoples banking habits
More people doing their banking on the train than going to a traditional branch
Change in the banking landscape

16. 7. Laying the Rails for Innovation
Into the future
Scheme transaction limit review
At launch, £10,000 for SIP and FDP, £100,000 for Standing Order
2010 moved to a flat £100,000
2015 moved to £250,000
Future increases planned at a Scheme level– The plan is to increase the Transaction limit to £1m in 2017 – Looking at testing to £20m
It is a Participant decision as to what they offer customers (based on risk appetite, customer demand etc.)

17. 7. Laying the Rails for Innovation
Into the future
Current market challenges
Unlike other Schemes, FPS quickly exposes the downsides of indirect access
Bacs & CHAPS services work, broadly, the same in terms of timings etc., regardless of method of access
Existing connectivity models for Indirect Agencies stems from legacy developments (SWIFT/Batch file), and are not able to keep up with the need for speed
Cost of developing the necessary connectivity currently prohibits all but a few from joining
New Access Programme developed to address a number of these issues and make joining the Scheme more straight forward

18. 8. Access
Why access to real time payments is so important

19. 8. Access
Trigger points
Current Account Switch Service (CASS) creates an opportunity for smaller banks to more easily grow their market share, but they need to have comparable services to the established banks
Mobile will be something that “retail” banks will need to have in their proposition, along with real-time payment/receipt functionality
Overlay services (Paym etc) will drive more demand
Limit review will increase volume

20. 8. Access Access to payments
Payment Systems Regulator is keen to ensure there are no undue barriers to entry into the payment schemes; lots of Government and media attention
Scheme have looked at how it can make access simpler without compromising the integrity of the service
FPS requires a high degree of resilience/24*7 availability, which may require significant internal investment

21. Just some of the other considerations
8. Access
Just some of the other considerations
Accounting Platform
Operational Support
IT Support
Availability
Contingency
Administration/Management function
Compliance
Risk Function
Example - Why the Risk Function needs to be available 24/7

22. 9. Summary of Key Lessons Learned
The need for a clear end customer proposition; against which all functional and technical requirements are compared
As broad a reach as early as possible
Commitment from stakeholders to support the delivery of the agreed service proposition
Involvement of fraud, compliance, risk and credit management SMEs at an early stage
Early engagement with service users of all types (consumers, business, government)
Technology will evolve over time and enhancements will need to be made as technology developments
Communication strategy vital for successful execution of programme

23. 9. Summary of Key Lessons Learned
Communication strategy vital for successful execution of programme
Chairperson of the Communications Working Group for the Industry
Ensure there is a collective message
Ensure that the message is consistent
Ensure there is a communications plan that all participants sign up to
Ensure that once participants sign up to the plan they follow it
Ensure the messages are clear and concise
Ensure that all participants are relaying the same message

24. 10. Questions

25. Thank you