Faster payments ends wait for bank clearance

Consumers will be celebrating the end of the three-day wait for payments clearing with the launch of the new faster payments service today.

But banks and their corporate customers will have to wait a little longer before they gain any benefits from the service.

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The OFT-driven faster payments initiative, which seeks to reduce payment clearing times for internet and telephone payments of less than £10,000 to near real-time and standing orders to same-day processing, has been hailed as the start of the industrialisation of payments.

However, services used by large corporates will not be affected by faster payments initially, although they could see costs for same-day payments reduced from up to £30 to 40p, once they are allowed to move from Chaps (Clearing House Automated Payments System - a system for making high-value payments within 24 hours) to faster payments, analysts say.

Estimates of the cost to banks to bring this in are at around £100m. In addition, it wipes out the need for banks to keep a cash float, estimated by the OFT to be £30m.

According to analysts, because of the tradition of free banking services and the consumer desire for greater transparency, faster payments services will most likely be offered free to consumers, leaving banks with little opportunity to recoup investment in the system in the short-term.

Logica director of payments Simon Bailey said: "This investment has been driven by compliance, so it's difficult to turn it into a revenue opportunity. In the longer term, banks may see ways to offer value."

Analysts see the EU-wide Payment Services Directive, which comes into force in November 2009, as the real launch-pad for faster payments across Europe. This stipulates faster payments services to be in place by 2012.

TowerGroup analyst Gareth Lodge expects UK banks to be offering services bundled around faster payments for businesses by the time the Payment Services Directive comes into force.

He said: "By the end of the year, early adopters will be marketing services, such as wages payments. The introduction of Sepa also means that UK banks will have a competitive advantage over other banks in the area for offering faster payment services to overseas customers."