Real-time is becoming the 'new normal' in payments

Thought Leadership· 8min November 4, 2019

Looking at the UK Payment Statistics this morning, I noticed that the July 2018 Faster Payment Service (FPS) volumes (175m) exceed the volume Bacs Credits (171m) for the first time...

Looking at the UK Payment Statistics this morning, I noticed that the July 2018 Faster Payment Service (FPS) volumes (175m) exceed the volume Bacs Credits (171m) for the first time. The UK ‘instant’ payment scheme is therefore now processing more payments each month than the UK standard ACH payments service - in my view a very significant industry milestone.

Even more remarkably, this development was not due to a reduction of UK Bacs Payment volumes (although they have gone down slightly), but rather a more than 25% year-on-year increase in Faster Payments. All of this even without the proposed increase in FPS payment limits that is still subject to a non-object decision by the Bank of England.

What’s happening?

Our conversations with customers and settlement partners suggest that real-time payments have clearly reached almost every area of the payments market. Where historically the key driver used to be the retail banking sector, we are now witnessing a significant increase on the business banking and corporate side, eg for supplier and salary payments. Corporate treasurers and finance directors who have been getting used to the easy and fast way of making personal payments in real-time through online channels are now expecting the same customer experience for their business payments.

So, are we witnessing the demise of legacy ACH processing?

Probably not. Industry figures suggest that there is still a strong case for a low-cost, file-based net-settlement system for ACH Credits and Direct Debits. Especially on the direct debit side, it will take some time for ‘Request-to-Pay’ functionality to be rolled-out and established as a viable alternative. These payments tend to be recurring and non-critical from a timing perspective and amounts and beneficiaries are well known well before the payment needs to be made. Whilst many challenger banks have started off with a view that real-time payments will cover most of their customers payment needs, they have now realised that connectivity to ACH systems is required to receive salaries and pay utility bills for their customers.

However, I do believe that these statistics are yet more evidence that we are witnessing a significant shift in the global payments landscape. Whilst the UK seems to be one of the leaders in the migration from ACH to Real-Time Payments, many other countries are going to follow quickly. Driven by consumer expectations and new business models, new payment types like SEPA RT are already scaling much faster than the Faster Payment Scheme after it went live 10 years ago. Connecting these systems will eventually provide consumers and business with the opportunity to move money across borders – instantly and at very low cost.

At Form3, we are very excited about these industry developments. We help our customers to respond to changing market dynamics by facilitating access to ACH and Real-Time payment systems in the UK and Europe through a single payments API - providing them with the flexibility to develop new and exciting end-customer experiences. Moreover, processing both payment types in the same cloud-native environment allows them to either optimise for costs or speed in the execution of their payment instructions.

Written by

Michael Mueller Executive Chair

Michael set up Form3 in 2016 after spending more than 25 years in executive positions with Deutsche Bank, Royal Bank of Scotland, and Barclays. Before that, he was Global Head of Cash Management and a Member of the Corporate Banking Executive Committee at Barclays.  

For many years Michael has been passionate about driving digital change and innovation in global banks and has sponsored many key initiatives in this area, including white-labeling, biometric security, cloud-computing and mobile payment/banking technology.  

Re-engineering payment back-office systems in response to industry developments, customers demand, capacity constraints, cyber threats, payment fraud and cost challenges has been a strong focus of Michael’s work during his time in financial services and as the CEO of Form3.  

In October 2023 Michael handed over his responsibilities as CEO to Mike Walters and was appointed Executive Chairman, focussing on governance, investor relations, strategy, corporate development, key clients and industry initiatives.  

Michael holds a degree in Organisational Psychology and a Master of Business Administration from INSEAD.