UK Faster Payments Service

In December 2005 the Office of Fair Trading (OFT) and the banking industry agreed to create a new payments capability for the UK. This will go live on 27th May 2008. For internet banking transfers and telephone transfers between banks the movement will be near real time, with standing orders being processed on a same day basis.

Bacs works on a D+2 time cycle, and does not itself cause float as both the debit and the credit occur on D+2. However, to avoid the bank incurring settlement risk with personal and small business customers, most banks’ customers suffer the loss of 2 days float time, since payments are funded on day D even though the recipients only get value on D+2.

The banks have agreed that FPS will be introduced from May 2008 for sterling payments and that it will work on a near real time basis. For payments to a current account held with another FPS member the funds should be available within 2 hours, often this will be in matter of a few seconds. The initial priorities are the service channels where float has been suffered previously. The main beneficiaries here will be individuals and small business customers who make payments. Products and channels generally used by corporate customers will not be available for FPS until some later date, but corporates will potentially be receivers of Faster Payments into their bank accounts from the outset.

Direct access to the Faster Payments Service by corporate and agency customers is to be implemented in a second phase in 2009.

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