The Faster Payment Service (FPS) is a UK-based banking initiative to reduce payment times between bank accounts. Unlike the long-established Bacs Payment Schemes Limited (BACS) and Clearing House Automated Payment System (CHAPS) networks, transactions through FPS are executed within seconds instead of days.
The main difference between BACS and CHAPS is that the former takes three days to transfer funds, while the latter is much quicker but exclusively for high-value operations. FPS focuses on a much larger number of smaller payments and can be used for transactions up to £ 1 million. Transfer limits can change depending on individual banks. However, transfer time, while expected to be shorter, is not guaranteed. Nor is it guaranteed that the receiving institution will instantly credit the payee’s account.
One building society and nine banks, accounting for approximately 95% of payments traffic, committed to using FPS at its launch. Today, the network consists of 40+ direct participants. Smaller organisations such as saving institutions and building societies can use the service via agency arrangements with a direct participant.
FPS was officially introduced on 27 May 2008. At the time, only a few announcements were made regarding transaction fees. It was expected that the network would charge around £1–£5 for immediate payments by business users. On the other hand, retail banks didn’t charge personal customers for the service (a practice that has remained unchanged since then).
Business and personal users use an online sort code checker made available by the UK Payments Administration Ltd. (UKPA) to verify whether a particular sort code can receive payments through FPS.
On 1 May 2018, the Bank of England announced that the New Payment System Operator (NPSO) would operate the BACS and FPS systems. It was also announced that FPS had become a subsidiary of the NPSO.
Organisation
UKPA, formerly APACS, was responsible for developing and delivering the FPS network. After May 2008, day-to-day operations and management of the system were transferred to the CHAPS Clearing Company.
At the end of 2011, Faster Payments Scheme Limited (a member-based organisation) was established to separate FPS’s day-to-day operations and management from CHAPS. However, VocaLink is still responsible for providing and operating the network infrastructure.
Participating Members
FPS’ original founding members were:
- Santander UK (known as Abbey at the time);
- Alliance & Leicester (now part of Santander UK);
- Barclays;
- Citi;
- Clydesdale Bank (Yorkshire Bank included);
- The Co-operative Bank;
- HSBC;
- Lloyds Bank and TSB (known as Lloyds TSB at the time);
- NatWest;
- Danske Bank (known as Northern Bank at the time);
- Northern Rock;
- Bank of Scotland (Halifax included);
- RBS;
- Ulster Bank;
- Nationwide Building Society;
In February 2011, Abbey and Alliance & Leicester merged their membership under Santander UK. In September of the same year, the Bank of Scotland combined its membership with Lloyds Banking Group. One month later, Northern Rock resigned from the network. In November 2011, the remaining ten members became the original shareholders of Faster Payments Scheme Limited.
Metro Bank became the first High Street financial institution to join FPS in December 2016. At the beginning of 2017, Starling Bank joined the network as a direct partner (the first digital-only bank in the system’s history). Ebury joined FPS as a directly connected non-settling participant (DCNSp) the following year.
In April 2018, TransferWire joined the network, becoming the first non-bank payment service provider to be a directly connected settling participant. Equals Money joined in 2019, which made it the fourth institution of its kind to be part of FPS. Today, the system has over 40 bank and non-bank members.
Background
The United Kingdom Treasury commissioned the Cruickshank Report (a review of the competition within the UK banking sector) in November 1998. The report was completed and submitted in March 2000. It featured recommendations for primary legislation to establish an independent payment systems commission (PayCom) to replace existing privately controlled interbank arrangements.
The following day, Chancellor Gordon Brown announced that legislation would be introduced, if required, to subject payment systems to augmented competition. The British government consulted the banking industry on further steps and progress in payment services monitored by the Office of Fair Trading (OFT) and the Competition Commission.
While the OFT reported modest ameliorations, such as the governance of APACS and changes to BACS, by May 2023, several competition concerns remained. In December 2003, the UK Treasury declared that the OFT would take a significant role in payment systems for four years. The objective – to resolve outstanding competition problems prior to any legislation. In March 2004, the OFT announced the formation of a joint government-industry body, the Payments Systems Task Force, under its chairmanship.
Agreement
In 2005, the Payments Systems Task Force announced that an agreement had been reached to minimise clearing times for Internet, phone, and standing order payments. This meant the payments services industry had to commit to developing a network able to clear automated transactions in no more than half a day. Implementation groups were given six months to present detailed solutions and proposals.
APACS gave the contract to provide the central infrastructure for this new service to Immediate Payments Limited (a joint venture company between LINK and Voca, who have since merged into a single entity) in October 2005.
In December 2005, the Payment Systems Task Force accepted an APACS proposal for a more ambitious target on payment times. It wanted to ensure access to funds within a few hours of the transaction. This means business and private users could execute payments 24 hours a day, seven days a week. November 2007 was the deadline given for the deployment of the new functionality. This also marked the dissolution of the Task Force and the creation of a permanent body (The Payments Industry Association, later renamed to Payments Council) responsible for all payments systems, including FPS. the Payments Industry Association, which was later renamed to Payments Council.
