The Faster Payments Service (FPS), which was introduced in the UK in 2008, is now gaining momentum with customers, making five-day clearance periods a thing of the past for many.
The UK market has been restricted by the fact that only the 11 most established high street banks are able to make use of the system. This limits access by other payment ecosystem players, such as challenger banks and financial technology companies, which have to gain access to the scheme via current members, and service is not always in real time.
Regulators are working to address this and the Payment Systems Regulator has announced a new access model while working with different payment service providers to help clear all access hurdles.
“This new model should alleviate some of the bottlenecks within the system, whether around greater transparency in how solutions and gateways get certified for Faster Payments transactions or the costs associated with supporting those transactions,” says Travers Clarke-Walker, managing director of international payments at financial technology firm Fiserv.
Most significantly, the new access model will allow other players to have access to FPS, helping them to compete on a more level playing field. This is especially important for the so-called challenger banks that have emerged over recent years as an alternative to the traditional institutions. “It will allow challenger banks to focus on differentiating themselves from those high street banks through customer service and product design, versus being limited due to lack of direct connectivity with FPS,” says Mr Clarke-Walker.
Many banks, including traditional players, challenger banks and building societies, are now working with Fiserv and taking advantage of the new access model to get a direct connection to the Faster Payments network, he says.
“We are seeing a high level of appetite for alternative access to the Faster Payments Service among financial institutions, especially challenger banks, since we launched our Agiliti solution,” he says. “Agiliti provides comprehensive software and infrastructure designed to address the evolving UK banking and regulatory environment. Its value proposition supports core bank processing plus many of the surrounding needs to support existing retail or challenger banks.”
Financial institutions need to be ready as these changes will help transform the UK banking landscape
Agiliti will also include a Faster Payments connection which allows banks not already on the network to gain access. “This development allows challenger banks a number of options,” says Mr Clarke-Walker. “If the bank had an existing relationship with an agency bank, they can continue or they can connect directly and put the cost-savings against other priorities to make them more competitive.
“The high street banks clearly acknowledge the increased level of competition that is coming with this new access model, and are actively thinking and experimenting with a variety of digital solutions to defend their position in the marketplace,” he says.
REMOTE DEPOSIT CAPTURE
One way in which financial institutions can help drive greater utilisation of Faster Payments and electronic payments in general, is by providing greater utility to the growing legion of mobile banking users. The ubiquity of mobile devices globally is changing the way people interact with businesses, banks and each other, which is a game-changer in the payments environment.
One payment type gaining traction in the UK that leverages mobile devices in banking is mobile or Remote Deposit Capture (RDC), which is the ability to capture a cheque image and convert it into an electronic payment digitally. “We recently supported a pilot for a bank in the UK and are working with high street banks to set themselves up to accept remote deposit through mobile phones. This is very similar to how we enable banks for RDC in the United States and Australia,” says Mr Clarke-Walker.
“Cheque capture is a smart way to help bridge the gap between those who want the cheques to be further digitised, so they can be processed in real time as a Faster Payments transaction, and those who still prefer to handle a paper cheque.”
For challenger banks, cheque capture should be part of their standard offering, while the potential exists for existing banks to gain efficiency in operations by the introduction of a remote cheque capture strategy. This technology could contribute to an upsurge in mobile and digital banking, enabling branches to focus on relationship-building rather than acting as cheque post offices. By focusing on delivering solutions for the way customers are already using mobile devices, banks can benefit from increased transactional activity which directly correlates with greater customer loyalty.
In a new cheque clearing model, using the Faster Payments Service and enhanced mobile banking services, credit is transferred between trusted parties. Payers can be advised when cheques are presented for payment and, if a cheque returns unpaid, an enhanced service would enable the payer and payee to communicate and fix the problem quickly, minimising rework and exception processing. Banks are perfectly able to create this new order; they will need to localise best practices in RDC from markets such as the US and Australia, and marry them to their existing Faster Payments workflow.
“The UK is a global leader in the upgrading of payments system infrastructure that is commonly used to move money,” says Mr Clarke-Walker. “This will result in greater cost efficiencies and transparency in how money is moved. Financial institutions need to be ready as these changes will help transform the UK banking landscape and they will increase the level of competition from a variety of fintech organisations looking to redefine modern banking practices.”
The examples provided by Faster Payments and RDC highlight the changing banking landscape where traditional and challenger banks in the UK must have a comprehensive digital payments strategy to ensure their customers can operate when and where it suits their life.
Fiserv has already delivered real-time payment networks in the US and is currently working with SWIFT to roll out the National Payments Platform in Australia. To find out how Fiserv can help your business, visit www.fiserv.com