By Julian Goldsmith, 27 May 2008 12:56
NEWS
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."
Comments
There are 4 comments. Join the discussion
1. Neil
The value is already there for the consumer in the quicker turn around of funds. Not sure how the banks can add more value to this, so they are looking again to make money out of the consumer.
2. Don Tregartha
No sign of it yet.
Last night I was told it would take up to five days for an electronic transfer from an HBOS internet account.
Perhaps we'll all have to sign up to some new service to get this stuff.
3. Richard A
Anybody who has bought eBay items from the European mainland will have discovered that most private sellers eschew PayPal, expecting payments via IBAN transfer to their personal bank account.
This is fine within the Euro zone, where IBAN transfers are as good as free, but from the UK it is absurdly expensive.
My UK bank recently trumpeted its "low charge" of £19.95 per transaction, having previously demanded around £30 to make a payment in Euros!
4. Adrian Stafford-Jones
The Faster Payment Initiative has the potential to transform UK business and is the envy of organisations across Europe.
The Faster Payments initiative will be a fraction of the cost of CHAPS transactions and facilitate almost ‘real time’ payments, it allows companies to take far greater control over the payments process and thus offers businesses maximum control over spending patterns. The money saved in banking costs will be substantial and will free up capital resource across the entire business network.
The evolution in purchasing over the past few years has created massive demand for rapid payment solutions. Business moves more rapidly today than it ever has before and will only get faster, with payment systems in danger of lagging behind. Online purchasing provides a clear business imperative for payment systems that propel rather than impede today’s business practices.
With the right attitude and approach to streamlining processes, reducing costs and improving cash flow, faster payments will cause a major economic shift and change the face of UK business forever.