UK Faster Payments

Introduction

The UK faster payments system (FPS) was originally established in 2008 and indeed was the first such system in the world. Used for the processing of mobile, standing order, online bill and person to person payments, it is the key system for retail payments in the UK as well being used for certain business payments. Transactions are normally processed within seconds from originator to beneficiary and the system runs on a 24/7 basis.  Settlement takes place three times a day with member positions being calculated on a net basis and obligations being settled between member settlement accounts at the Bank of England.  Historically the members of the system were banks, but recently FPS has been opened up to payment and e-money institutions.

There are three different membership options:

Direct Settling Participant

A Direct Settling Participant has direct connectivity to the FPS infrastructure and must open a settlement account at the Bank of England in order to fund its payment obligations. Access to the settlement account infrastructure will also require the Direct Settling Participant to join the SWIFT financial messaging network. In addition to the settlement account the member must also post collateral to a separate account in order to cover its single largest daily net debit position in the system. The ability to receive payments on a 24/7 basis is mandatory.

Direct Non-Settling Participant

A Direct Non Settling Participant has full connectivity to the infrastructure, but is sponsored by a Direct Settling Participant with whom it will open a bank account. The latter will be responsible for the settlement obligations of the former who therefore does not have to maintain a settlement account at the Bank of England or place any collateral in the system. Intraday funding arrangements will be agreed between the two parties. The ability to receive payments on a 24/7 basis is mandatory.

Indirect Participant

An Indirect Participant has no connectivity to the infrastructure and processes all its payments via a Direct Settling Participant. Hence the accounting relationship is purely with the Direct Settling Participant and the two parties will need to agree the terms of the faster payments service. There is no mandatory requirement to receive payments on a 24/7 basis.

Which level of access do I require

When considering which level of scheme participation is most appropriate the following criteria should be considered:

Technology

The level of complexity will be determined by the level of membership. Direct Settling Participants for example will require connectivity into the FPS infrastructure which involves either building a gateway or buying one from a recognised FPS supplier. Direct Settling Participants also have to join the SWIFT messaging network in order to access the Bank of England Settlement Account which will involve installing a separate gateway. Indirect participation will only require technical access to a direct participant.

Cost

The first two membership options will incur testing and transaction fees from Vocalink the FPS technology company, plus there will be costs for building and/or running the gateways, depending on the technology supplier chosen. Direct Settling Participants will also incur SWIFT fees for any payments over the Settlement Account. Indirect participants will simply incur fees from their chosen provider which are usually a combination of transaction, account maintenance and technical implementation fees driven by volume.

Liquidity

Direct Settling Participants will have to manage their own liquidity on a daily basis to ensure that all their payments are processed effectively. They will have to calculate their highest daily net debit position accurately so that they post the correct collateral to their segregated account. Too little collateral and they will see payments failing. Too much collateral and that will be an opportunity cost as the cash is effectively out of use.

Timing

Joining the FPS scheme as a Direct Settling Participant is a lengthy process which can take anywhere between nine and twelve months and require the dedication of significant resource. If time to market is crucial using the services of a Direct Settling Participant may be a more attractive and simpler process.

In summary payment and Emoney institutions need to have a very clear vision of their payments journey in order to determine the appropriate level of membership. Budget, resources, technology stack and client demand all need to be factored when making this decision.

Here at AuthoriPay we have extensive knowledge of FPS and the work that clients will need to do in each of the access models and we will be delighted to offer our assistance.

Get in touch

    AuthoriPay Ltd, Milton Hall,  Ely Road, Cambridge,   CB24 6WZ.

    +44 (0) 1223 82 82 66

    contact@authoripay.co.uk