Real-time payments have the potential to revolutionise global business, with money changing hands in seconds rather than days. But despite the many benefits of instant payments, the UK’s Faster Payments network, championed by 21 banks and set up over ten years ago, has still not won over large swathes of the UK payments market.
For example, traditional Bacs transfers still account for 90% of UK workers’ salaries. The Bacs system, which takes three days to clear, was used to make 6.35 billion payments in 2017. Compare this with Faster Payments which accounted for just 1.7 billion during the same period. Bacs also set a new record on 30 June 2017, with 111.5 million payments made in a single day. I think you’ll agree, this is hardly the performance of a Bacs payment system falling out of fashion.
Slow on the uptake
So, why are companies, banks and consumers so slow on the uptake? Much of the answer lies with the conservative, risk-averse nature of the financial sector. Traditional payment solutions such as Bacs, Direct Debit and CHAPS may take longer to clear, but they are very secure and very effective, having been tried and tested over decades. For example, you can recall Bacs payments made by mistake and track faulty Bacs payments weeks later, neither of which can be said for Faster Payments transactions. Once you hit send the money has gone.
Faster Payments does have some really compelling benefits. For example, it processes one-off payments almost instantaneously and recipients typically get their money immediately. The service is also available 24/7, rather than during business hours, like traditional payment systems.
Speed and convenience are huge drivers for payment innovation, but ultimately there has to be more to Faster Payments for it to take over from Bacs. Many banks would be forgiven for saying, Bacs isn’t broken, so why try to fix it?
Closer control of cashflow
The swiftness of Faster Payments is great news for businesses and consumers who crave closer control of their cash flows, but the real sticking point is how banks, in collaboration with fintech players, can add additional value to the system specifically for the end user to boost user adoption.
One way of achieving this would be to identify inherent problems with Bacs and other traditional payment systems and ensure Faster Payments offers a clear solution. For example, with Bacs it’s easy to miss-key account details and transfer money to the wrong account, that’s why the Bacs recall functionality is so useful. If Faster Payments featured something as simple as a checksum or even better active verification of the destination account to avoid incorrect payments in the first place, that would increase value and user adoption.
Another value add would be greater access to the real-time status of payments, enabling firms to spot when payments are going to fail, so they can quickly fix the problem.
With Bacs it can take three or more days to discover an employee payroll hasn’t been processed correctly and then the process has to be started over again – a sure-fire way to upset any workforce.
Faster Payments would also be more attractive to both businesses and consumers if it offered its own instant version of the Direct Debit. Faster Payments is currently working on this service, naming it Request to Pay. It hopes to have it in service in two to three years’ time.
Meanwhile, a London-based fintech Soldo has just created an integration with the digital-only challenger bank Starling to enable companies to delegate, control and track company and employee expenses in real time.
There’s no denying that Faster Payments does what it says on the tin. Compare this to traditional payment systems such as Bacs, Direct Debit and CHAPS, which are unwieldy and lumbering, but it seems ‘slow and steady’ still wins the race when it comes to the battle of the payment systems.