The UK Faster Payments Service – how it works and what it means

The Faster Payments Service (FPS) is one of several initiatives developed following a review of the UK banking industry in 1998 – 2000.

The review concluded that payment systems should be opened up to increased competition and that payment clearing times should be reduced for many types of transaction.

There were many legislative and regulatory hurdles to overcome. But, in October 2005, APACS, the UK payments association, was able to award the contracts to create the FPS infrastructure.

FPS comprises of a number of networks connecting banks to each other and to the core central system, known as the Real-time payment platform. This allows the banks to send payments and messages to each other.

There are two main stages to making an electronic payment from one bank to another. The sending bank must send the payment instruction to the receiving bank and await confirmation of the payment. FPS has introduced a high speed network capable of shortening the send/confirm cycle down to a few hours, rather than days, whilst retaining the capacity to process millions of transactions per day.

However, a small number of branches (about 3%) are not connected to the FPS network, so it is important for banks and customers to check prior to sending a payment. Several third party software companies provide facilities to make these checks, for example Unified Software’s BankVal UK web service.

FPS gives customers the ability to make near real-time payments, 24 hours a day, 7 days a week. The cost per transaction is much less than for CHAPS payments (also near real-time) making FPS cost effective for the type of smaller value business to business and business to customer transactions that we all use, every day.

FPS will also help businesses to manage their finances and improve their cash flow. FPS will eventually be rolled out to process other high volume payments such as Direct Debit and standing orders, eventually becoming the default payment mechanism.

Unified Software Ltd is the UK's leading financial web services provider. Our pioneering BankVal family of services have been helping business run smoothly since 2003.