Faster Payments – Quicker than BACS, Cheaper than CHAPS
Faster Payments – a new online immediate payment service – which provides businesses with a more flexible alternative to Bacs Direct Credits and a cheaper alternative to CHAPS for same day payments – and provides consumers with the ability to make instantaneous sterling payments from their Internet Bank account to other UK bank accounts.
In May 2008, the Faster Payments Service (FPS) was introduced predominantly for consumer banking. It was then, and still is, the first new payment service to be introduced in the UK for 20 years. Direct Corporate Access (DCA) for the service was made live in March this year, enabling businesses to utilise the system to submit Bacs-type files of payments. Initially DCA is being rolled out by Barclays Bank. Submissions can be made between 6am and 2pm, Monday to Friday, and the transaction charge for a Faster Payment is no more than £3, plus a file charge of about £7 – although these costs are negotiable with your bank.
Until the arrival of Faster Payments, businesses had little alternative but to make last minute payroll or supplier payments via the CHAPS system – a service costing around £15-£30 per transaction – a high expenditure for any business to incur regularly. Now, FPS is providing a timely shot in the arm for the UK payments infrastructure and offering a more cost-effective way to pay promptly.
Why might you want to use Direct Corporate Access?
- Payroll items – compared to submitting via the 3-day Bacs cycle, FPS allows much more time to be spent on payroll processing should last minute changes, processing errors or missed items occur. Temporary staff are also better catered for as their wages are, more often than not, paid weekly.
- Supplier payments – rather than settling these by Bacs or cheque, instantaneous payments improve relationships and open the door to potential future discounts.
- Expenses – employees no longer have to wait until the end of the month to be reimbursed for expenses.
- Contingency/disaster recovery – in the event of a network error or if an employee has forgotten their smart card, FPS can be used the following day.
- Ad hoc/emergency payments – where time is of the essence, unexpected payments can be processed quickly and cheaply.
FPS fares favourably when compared to the payment methods currently in operation. Bacs payments have proved a stalwart of the payments world for over 40 years due to their cost effective and reliable nature, but tend to fall short when it comes to flexibility given its 3-day processing cycle. While the vast majority of payments will continue to be routed via the Bacs service, DCA provides an alternative where Faster Payment would be appreciated by the beneficiary. The CHAPS payment service provides instantaneous funds transfers but is far from cost effective and cannot handle bulk submissions as FPS-DCA can and, as such, there is likely to be a migration of same day transactions away from CHAPS to FPS.
FPS usage has grown steadily since its introduction 18 months ago and although it is not intended to provide competition for Bacs, it is more than capable of overtaking CHAPS as the same-day payment method of choice. The Payments Council estimates that as interest in the system grows, annual volumes could reach as high as 2.5 billion in the next 10 years, heralding a much more cost-effective and slicker generation of automated payments.