The UK payments system, Faster Payments, is the world leader in real-time payments. It is likely to process over 1.2 billion transactions in 2015, a volume far ahead of all other similar systems globally. With seven years of operations, there are key learnings and insights from Faster Payments relevant for the growing number of countries planning or building real-time systems.
First and foremost among these is the customer proposition – real-time payments need to be guaranteed real-time (at least <5 s), available 24×365 and give real-time confirmation to the sender. For the first five years of Faster Payments operation, most UK consumers could not care if payments were real-time or not, same day was good enough. However, over the past 18 months there has been a sea-change in expectations – consumers, and increasingly businesses, expect real-time payments, and complain loudly if there are any delays.
This has major implications for the way real-time payment systems are accessed – the UK experience shows the traditional direct/indirect, sponsor/agency model to be unfit for real-time payments. Accessing Faster Payments through a sponsor bank creates an intermediate step, which, for technical, operational and compliance reasons makes it difficult, if not impossible, for the sponsor bank to guarantee real-time payments and to provide them 24 x365. UK Banks and PSPs without direct access to Faster Payments have a significant competitive disadvantage to those that do.
Faster Payments’ solution to this issue is to open up access to bank and non-bank PSPs through encouraging aggregator (technology) companies to provide services giving direct technical access. Not only can these services be configured to guarantee real-time payments, and to operate 24×365; as aggregators their economies of scale can enable even low volume PSPs to access Faster Payments at a reasonable transaction cost.
In addition to customer proposition and economics benefits, these aggregators give strategic benefits to PSPs – choice of supply, control, independence, security of holding settlement funds at the central bank (instead of at a commercial bank), separation of access from settlement and flexibility to switch providers.
Countries embarking on real-time payment initiatives have the advantage of benefiting from the UK experience and using lessons from Faster Payments to guide them. In particular, the importance of a customer centric approach to implementing real-time payments, and the limitations of bank-centric arrangements.