In the UK the Faster Payments system has been up and running for 6 years. We’ve become used to sending and receiving money, if not quite in real-time then much faster than previously; in an increasingly rushed and hectic world the ability to send money quickly and easily offers convenience to consumers and businesses alike.
Adoption of Faster Payments as a mechanism has been widespread with 967.6 million transactions processed in 2013.
On the global stage, faster payments schemes are now a hot topic: Singapore’s system has gone live and Australia already has a scheme in progress. In the USA the Federal Reserve has recently confirmed that it’s pushing ahead with plans to adopt faster payments as part of a broad effort to modernise the country’s payments infrastructure.
While these schemes will vary from country to country, they also have much in common with the UK’s Faster Payments scheme. I think there are 3 areas where taking a look at the UK experience could inform new adopters
1. Increased focus on validation and verification of bank account data
I wrote about this in an earlier blog (click here to read). Because Faster Payments are almost instant and irrevocable there is an increased need to understand more about the bank account the payment is being sent to:
- is it likely the account exists?
- can it accept Faster Payments?
- does the account belong to the person you wish to pay?
- is the account open?
Some of these questions can be answered by validating bank account data, some need verification, those relying on Faster Payments to send and receive money need to understand which of these factors are important to them and have a strategy to manage.
2. Consumers love Faster Payments but…
The Faster Payments System has bailed me out a few times, when a bill is almost due and I haven’t the funds in the right account, when my son has phoned from university needing an emergency injection of cash, when I’ve needed to pay the electrician and couldn’t find a cheque book. Consumers however sometimes expect to be protected from themselves: if they enter bank account details incorrectly and send the payment to the wrong beneficiary they can’t instantly or easily recover the money – this has sometimes come as an unwelcome shock. If faster payments systems in other countries are also to be irrevocable, consumer education will be key to avoiding PR horror stories.
The Faster Payments system has also altered consumers’ expectations regarding cleared funds reaching their account, it has lowered tolerance for the failure of debits due to insufficient funds, their perception being that they have funded their account in time which brings me to point 3…
3. When are cleared funds and debits applied to an account?
There have always been types of payment that can be applied as cleared funds to an account, for example cash and RTGS transactions. In recent years the volume of cleared funds reaching an account during the day has vastly increased due to Faster Payments; these can be mobile payments such as Pingit and inter-account transfers through internet banking.
Traditionally credits were applied to an account at midnight followed by debits shortly after. In order to reduce the rate of payment failure due to insufficient funds, a “retry” service has been introduced, with credits and failed debits being re-applied from 2pm onwards (individual banks are determining the actual timing – after 2pm). This is another move that will be welcomed by consumers who are less likely to become overdrawn and businesses which will be more likely to receive payments on first application.