Before we can have any meaningful discussion about faster payments, it’s important we first clarify that “faster payments” can refer to one of two things: the U.K.-based payments service designed to facilitate real-time payments and, more generally, real-time or near-real-time payments. We’ll cover both topics in this guide page, with particular attention to faster payments in general.
What are Faster Payments (in the U.K.)?
The Faster Payment System, often abbreviated to FPS, is a central infrastructure facilitated by Pay.UK. It is designed to provide round-the-clock support for real-time payments of up to £1 million for individuals, businesses and charities; these payments are primarily initiated online, via mobile device or via telephone banking.
FPS can support a wide variety of transaction types, including single immediate payments, forward-dated payments, standing orders and direct corporate access payments. Although it was built on the ISO 8583 messaging standard, Pay.UK has instituted standards for mapping ISO 8583 messages onto the new ISO 20022 standard.
Launched in 2008, the Faster Payments System was the first official entry in a larger global push toward real-time payments. FPS offers greater speed and convenience than traditional payment methods, is a low-cost option for both businesses and individuals and has helped drive innovation in the U.K. payments market. The success of FPS has been emulated in other markets around the world.
And the push for innovation continues: The U.K. is currently in the process of phasing out FPS and replacing it with the New Payments Architecture (NPA), a real-time interbanking system built on the ISO 20022 standard.
What are faster payments (in other parts of the world)?
Outside of the U.K., “faster payments” is a general term used to describe any immediate or near-immediate payment, including real-time payments, debit push payments and — in the United States — Same Day Automated Clearing House (ACH) transactions.
These payments can take anywhere from a few minutes to a few hours to complete, depending on the particular payment type. As a result, they’re a popular option for time-sensitive payments, such as payroll processing, emergency fund transfers, eCommerce transactions and person-to-person (P2P) payments.
How does U.K. Faster Payments differ from faster payments?
All payments facilitated through the Faster Payments System in the U.K. are considered faster payments, but not all faster payments are facilitated through the Faster Payments System. Additionally, all payments facilitated through the FPS in the U.K. process and settle in real time; by comparison, faster payments may take anywhere from a few seconds to several hours to process and settle.
What is the difference between faster payments and real-time payments?
The term “faster payments” is sometimes used interchangeably with “real-time payments” (as well as “instant payments” and “immediate payments”), despite the fact that they aren’t the same thing. Faster payments derive their name from the fact that they process at a faster rate than traditional payment methods; however, not all faster payments are real time and immediate. As a general rule, faster payments are always credited by the end of the following business day.
By comparison, real-time payments are instantaneous — there is no time interval between when funds are deducted from the payer’s account and made available to the payee. Based on this distinction, all real-time payments are faster payments, but not all faster payments are real-time payments.
Faster Payments:
Real-Time Payments:
How do faster payments work?
Although the mechanics may differ from one country’s faster payments system to the next, the general process for completing a faster payments transaction is as follows:
Initiation: A payer, payee or third party initiates a payments transaction through their bank or a third-party payment service provider (PSP). If the payer initiates the transaction or transfer, they may need to provide the payee’s bank account information.
Authentication: The payer’s account provider authenticates the transaction request by verifying the payer’s identity and account number and the payee’s account provider. The account provider also verifies that the payer has sufficient funds or credit necessary to complete the transaction or transfer. Depending on the outcome of this step, the payer’s bank or PSP will either deny or approve the request.
Processing: Both the payer’s and the payee’s account providers exchange payments information and the transaction is processed through a faster payments system.
Reconciliation: The payee’s bank or PSP reviews the payments information from the payer’s account provider to ensure that it is properly credited. Both the payer’s and the payee’s account providers then verify the status of the payment and identify and correct any discrepancies in payments data to ensure that everything is properly recorded and accounted for.
Confirmation: Both the payer’s and the payee’s account providers confirm and clear the transaction prior to settlement. The payee’s bank or PSP will also send them a messaging confirming that it has received the payment.
Settlement: The payment is posted to the payee’s account for their immediate use.
Depending on the scheme, this entire process can take anywhere from just a few seconds to a few hours to complete. For example, FPS supports real-time payments, while Same Day ACH in the U.S. settles payments in near-real time.
What are the benefits to using faster payments?
There are many incentives for financial institutions to implement faster payments, including but not limited to:
Fraud and risk management
Faster payment transactions undergo thorough authentication, authorization and reconciliation. By increasing the number of checks, faster payments not only ensure that payments information is accurate, but also increase security by providing banks and PSPs with more opportunities to identify and proactively respond to potentially fraudulent activity and risk. Additionally, certain faster payment systems leverage blockchain to enable financial institutions to track payments in real time.
Lower operating costs
The entire faster payments process is automated, streamlining transactions and transfers and dramatically reducing the need for physical paperwork or manual intervention. This translates to increased efficiency, a frictionless payments experience, and lower operational costs and overhead for financial institutions.
Instant or near-instant access
The major selling point of faster payments is that they process and settle at a significantly faster rate than traditional, paper-based payment methods. This is good news for financial institutions’ customers — whether they’re individual consumers or businesses — because it means they have access to funds in real- or near-real time.
These accelerated speeds allow for better cash flow management and more predictable budgeting which, when paired with robust security protocols on the back end, create a more positive experience for customers and can increase overall satisfaction.
Interoperability
Many faster payment systems support interoperability by using standardized global messaging formats such as ISO 20022, supporting regulatory frameworks such as anti-money laundering and know-your-customer, allowing for interconnectivity with domestic and international payment networks, and adopting open application programming interaces.
Increased revenue
Faster payments open the door to new revenue streams through value-added services, such as Request to Pay, person-to-person payments, credit scoring services, instant loan disbursements and international remittances.
Competitive advantage
By offering greater speed and convenience to their customers, financial institutions can maintain competitive standing in an increasingly crowded market and more easily adapt to changing customer expectations and demand.
It’s also important to note that supporting instant payments — that is, payments that process and settle in real time — will soon become a compliance obligation for PSPs in the European Union (EU) and the European Economic Area (EEA). In October 2022, the European Commission (EC) announced a legislative proposal that would require PSPs to provide instant payments in an effort to modernize payments across the EU/EEA. That mandate is expected to go into effect by the end of 2023, so it’s in PSPs’ best interest to begin implementing instant payments now.
Which organizations provide support for faster payments?
Faster payments are becoming more commonplace as a growing number of countries implement their own faster payments infrastructure. In addition to the FPS in the U.K., other examples of faster payment systems include:
ACI enables both financial institutions and merchants to reap the rewards of faster benefits from faster payments with our Enterprise Payments Platform and ACI Instant Pay solution.
The ACI Enterprise Payments Platform is a 24×7 global payments hub that combines high- and low-value payment processing to add new payment types — including real-time payments — so that financial institutions can meet customer demands.
ACI Instant Pay is an omnichannel payments solution that enables merchants to offer their customers the ability to make payments directly from their own bank accounts, providing instant settlement and eliminating interchange fees.
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