A foundation has been laid and now is the time to double down to accelerate innovation.
The concept of real-time payment processing both from an operational and cost advantage is big news yet only 36% of all electronic payments in the UK are now via the Faster Payments Service (FPS)1. One could argue that FPS has fundamentally changed the nature of payments, user experience and the real economy. But in reality, the race to real-time has been slow and steady rather than a gold rush.
There are daily reminders of the great business innovations made possible by FPS such as ordering and paying for your daily decaf latte before you get to the café, receiving real-time payments as part of the gig economy or adding funds to your teenagers’ pre-paid card. How many more ideas could be realised from those little life-enhancers to huge game-changers, if it was easier for innovators to access FPS.
In a June 2019 report, Accenture summarised the aims of FPS as “boosting speed, competition and innovation in UK payments” and concluded that it has “delivered on every count”. But that risks sounding like job done. As if we’ve reached our destination, when really the journey has only just begun:
- The need for speed: Near-instant payments and the ‘always-on consumer’ sound like perfect partners. Previously, consumers would expect payments to take up to three days to process. Today, a transaction is expected to be instantaneous, ubiquitous and convenient on any device. Likewise, businesses want and expect the same instant service and not have to wait until the next day or worse for funds to appear. Given that 36% of all electronic payments in the UK are now real-time via FPS, why are the other 64% going much more slowly? There is evidence that suggests Financial Institutions are now getting closer towards real-time payment processing; in January 2020, Faster Payments service volumes (223m) outstripped Bacs credits (171m)2 and it seems the trend in Faster Payments adoption continues on an upwards trajectory.
- Boosting competition: With a potential UK pool of over 3,000 regulated entities, is 36 directly connected FPS participants (only 10 of those are non-banks) enough to tick the competition box just yet? And do potential indirect participants have the optimum variety of potential agency banks to choose from? Perhaps the reason behind the sluggish gold rush of becoming direct participants is that the new breed of indirect real-time service providers offer few downsides in terms of speed and a good deal of upsides in terms of cost.
- Empowering innovation: FPS’s New Access Model of 2016 set out to level the playing field for the provision of technology for access between the ‘usual suspects’ and the ‘bright young things’ by creating an aggregator model. This model enables accredited tech vendors to offer Payment Service Providers (PSPs) more ways of accessing FPS. But, even when the vendor’s end-to-end solution is the same platform for each new participant (the very definition of multi-tenant aggregation), FPS Scheme Rules require that each new Participant is re-audited with every application resulting in an attestation process that takes weeks or months. Could we not simplify the process of onboarding and empower innovation by reducing admin and cost of services which are already live and proven? Furthermore, having a clearer and more predictable view of the long-term plan for FPS would help aggregators to make longer term plans and investments for their customers.
The most significant growth in the uptake of FPS, and the most exciting innovation in leveraging the UK faster payment rails, has been in the past three years since challenger banks and non-bank regulated financial organisations were allowed to get on board.
To drive future innovation that has far reaching impact on the real economy, we need to all work harder to speed up the route to market for potentially great new B2B, B2C and C2C business models to access real-time payments. And that means giving more of the forward-thinking companies easy, flexible and cost-effective access to Faster Payments. Let’s begin by removing the barriers around technical access and easing the legislation around clearing, settlement and liquidity.
Looking ahead, what is the next, big innovation milestone in the payments landscape? Most likely it is the introduction of NPA which promises a more rapid adoption of real-time payments and richer payments data sets, insights and automation all served up through simple, secure and accessible APIs.
Whatever comes next, one thing is certain, business as usual just isn’t enough.