As of 1 January 2012, all payments made in the UK to an EU account must reach the recipient by the end of the next working day. There is no industry standard yet – but now that the SEPA deadline has been set, the implementation process for other initiatives should also accelerate, finds Duygu Tavan
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It has finally happened. The end-date for SEPA-compliancy has been set, and is only a year away. SEPA compliance has been a fact of life for quite some time, but now the delivery schedule is clear. At last, the industry can begin the journey in earnest. Even if the benefits of getting there are still less than clear.
The SEPA deadline may also spur the implementation process of other payment initiatives and in the UK, the Payments Council is clearly attempting to get some momentum behind a number of initiatives.
As of 1 January standing orders and one-off online and phone banking payments will have to be processed in two hours, and all e-payments must reach an EU recipient account by the end of the next business day a timeframe the UK Payments Council calls D+1.
And the Payments Council means business. It expects to boost the volume of Faster Payments by 25% from a year ago to 625 million this year; and register 15 million new internet, phone and standing order payments each month. Last year, the 500 million Faster Payment transactions processed amounted to more than £200bn, a figure that is set to rise further with the growth of Faster Payments volume.
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By GlobalDataAt first glance, and especially for the customer, Faster Payments are appealing: A transaction can be authorised at any time, payment confirmation is immediate, and most importantly, the transaction happens in near real-time.
But there are a number of issues for the provider: The service has to be available 24 hours, seven days a week. And the payment is irrevocable, so there is no room for error. Many banks see Faster Payments as a complex and risky business certainly not something to trumpet to their customers.
Standard setting
The UK Payments Council has not defined the exact standards for Faster Payments yet. It is going to set a minimum agreed value limit for single immediate and forward-dated payments sometime this year although not before June, a spokesperson says.
The Council will also initiate mandatory transparency, so that consumers and businesses to be told exactly when a payment will reach the recipient account. So far, value limits for retail payments range from £5,000 (Clydesdale and Yorkshire Banks) to £100,000 at Santander. For business customers, most banks offer a £100,000 cap.
That is a fair comment. Lloyds TSB, for instance, has a limit of £25,000 if the payment is made online. For telephone transfers, a spokesperson for the bank says it is "about £500", although higher value payments will be processed within the next working day, the Lloyds spokesperson says.
The Councils explanation for this variation? We want the dust to settle after the D+1 change, they say. The Payments Services Regulation has been a big push for Faster Payments its roll out was not a Big Bang, but a gradual one. Weve now got to the stage we wanted to reach in terms of service distribution.
So far, so slow – says Bluerock
In a report published last November, Bluerock Consulting blasted UK banks for what it sees as a failure to capitalise on Faster Payments. Richard Bissett, associate director at the consultancy, thinks banks do not understand their cost base blaming the lack of common standards for consumers confusion as to what Faster Payments are.
The levels and timings vary hugely across the industry. Banks just dont seem to be grasping the opportunity to promote Faster Payments, he says.
Bissett suggests that to generate revenues from Faster Payments, banks should productise it. Customers are willing to pay for a service or product that gives them what they want, he argues. Such a service would be a fraction of the price of some payment alternatives, such as CHAPS.
In a statement made to Electronic Payments International, Lloyds TSB says the service is free to all its retail banking customers and that it has "no plans to charge for this in the future". So, suggests Bissett, one of the most lucrative revenue streams could be SME and corporate banking. That is obvious, says Bissett, because they already pay transactional fees.
But Faster Payments has a clear retail opportunity. Bissett argues that if banks do not act swiftly, other companies outside of the banking community will invade, and come to dominate the payments space. Of course, this is a particular concern in the emerging area of online and mobile payments, where the vast majority of transactions fall well under the £10,000 Faster Payments limit.
Only 0.3% of personal internet and phone payments are over £10,000, so effectively, every payment over these media is a Faster Payment, says the Payments Council spokesperson.
So, the opportunity is there: Faster Payments can be the platform on which mobile payments can be developed. Provided there is enough standardisation in place to ensure that platform is solid and reliable.
Standards implementation
Because Faster Payments only recently became a legal entity, the scheme still needs to agree service levels with the Payments Council, and standardisation is dragging. And the risk is that another service will steal a march on them.
Particularly as SEPA deadlines start to bite, and e- and m-commerce continue to pick up momentum, consumer demand for immediate, convenient and efficient payments will inevitably increase competition and drive innovation.
Faster Payments could indeed change the payments landscape, but until standardisation takes place, the industry could just as well slouch towards it just as it has been towards SEPA. But the SEPA end-date may actually push things forward.
The standardisation and development of coherent Europe-wide services should be viewed with far more optimism than it has been up to now.
