The Faster Payments Service should have been up and running in November 2007. Sadly, almost 18 months on, we're still not enjoying its full benefit.
On Wednesday, consumer watchdog the Office of Fair Trading (OFT) criticised British banks for not processing electronic payments (and clearing cheques) quickly enough. The OFT's latest report into the Faster Payments Service found that, although payments have speeded up, banks need to do more to ensure that same-day payments become the norm.
Why do we need faster payments?
Most single electronic payments and standing orders are still made via the outdated Bacs system, which requires at least three working days to complete inter-account transfers. Why should our money 'vanish' for three days while it plods through the clearing system from one account to another? In addition, why should we endure rip-off overdraft penalties because inter-account transfers don't clear in time?
High-value payments between accounts are already well catered-for via the secure, same-day service provided by the Clearing House Automated Payment Service (CHAPS). While CHAPS transfers are relatively cheap for members and heavy users, consumers are often charged up to £35 a pop for these faster payments.
Thus, the idea of the Faster Payments Service is simple: to cut down on this three-day wait for transferring low-value amounts between personal or business accounts with two different banks. FPS can be used for single payments of up to £10,000 set up by telephone or Internet banking, and is gradually being introduced for standing orders. It is available 24/7 (every hour of every day, including weekends).
The big problem with the Faster Payments Service (FPS) is that banks lose money by making it more efficient and widely used. Indeed, consumer champion Which? reckons that banks pocket £30 million a year in extra interest by hanging onto our money while it is being transferred between accounts. Thus, it is in banks' interest to drag their heels and string out the take-up of the FPS for as long as possible.
A history of hold-ups
Almost four years ago, in May 2005, banking group APACS agreed that the FPS would be up and running by November 2007. Predictably, in August 2007, APACS announced a further delay until May 2008, with the FPS finally going live on 27 May last year. Initially, the FPS only worked for 'in the present' one-off payments, but was expanded to include future-dated payments and standing orders from 6 June 2008.
Sadly, the OFT argues that most of us have yet to see the full benefit of the Faster Payments Service. It estimates that the FPS is currently operating at under seven-tenths (69%) of its capacity among member banks. Furthermore, the watchdog calculates that the delay in rolling out the FPS has cost consumers up to £82 million. Its conclusions are supported by a recent Which? survey which found that nearly two-thirds of us (65%) didn't know whether our bank had introduced the FPS.
What does the future hold?
Currently, these thirteen banking groups (which account for 97% of all UK payments) are signed up to the Faster Payments System, with others sure to join later:
- 1. Abbey
- 2. Alliance and Leicester
- 3. Barclays (and Woolwich)
- 4. Citi
- 5. Co-operative Bank (and its Internet bank smile)
- 6. HBOS (including Bank of Scotland and Halifax)
- 7. HSBC (including first direct)
- 8. Lloyds TSB
- 9. National Australia Group (Clydesdale and Yorkshire Banks)
- 10. Nationwide BS
- 11. Northern Bank
- 12. Northern Rock
- 13. Royal Bank of Scotland (including NatWest and Ulster Bank)
The OFT estimates that the FPS will reach its full capacity of ten million transactions per day no earlier than June 2009, so there is still room for improvement. After introducing FPS for standing orders, Lloyds TSB hastily withdrew it, and HSBC has no plans to use FPS for standing orders until the second half of this year. Hence, by the end of this month, only three banks will use FPS for all standing orders as well as Internet and telephone payments.
Banks' school report: 'could do a lot better'
It's my view that banks and their trade bodies have, once again, put their own interests before those of consumers. In an ideal world, the banks would face hefty penalties for failing to introduce and roll out the FPS in a timely manner. Alas, in this world of 'light-touch regulation', the foxes have once again been put in charge of the chicken coop, leaving to yet another comedown for consumers!
Despite the banks' best efforts to slow down the FPS, same-day payments are here to stay. Indeed, my own experience of FPS has been very favourable. I can now transfer funds between my savings, current and business accounts, with payments being received in an instant. Nevertheless, my main worry is that banks may decide to charge consumers extra transaction fees for FPS payments, as already happens in business banking.
Finally, banks have badly failed the public in recent years by being at the heart of the credit crunch and subsequent economic slowdown. If they want to rebuild their shattered businesses and win the public's trust once more, then they must improve their customer service. Having bailed out the banks with billions, taxpayers are in no mood to be fed more feeble excuses for poor financial products and services!
PS: You can check to see if an account will accept incoming Faster Payments using the APACS sort-code checker.
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