Launched in 2008, the UK’s Faster Payments (FPS) network revolutionised the global payments landscape by becoming the first service to deliver near instantaneous payments around the clock. Before then, users would be limited by the appropriate payment windows each day, and most payments took 2-3 days to arrive.
Faster Payments come with the benefits of speed and convenience, but are often tainted by the risk of APP fraud. Organisations must therefore implement automation and controls with platforms like Trustpair to reduce the risk of fraud and meet compliance demands.
How Does FPS Work?
The Faster Payment system works through a number of steps that happen almost instantaneously over the internet, which permits the payments to leave one bank account and enter another in seconds.
- The customer initiates the process by choosing the channel that they want to pay: online, over the phone or in branch.
- The customer instructs their bank to make the payment. This is known as the sending bank.
- The sending bank makes the payment to the receiving bank, using details like the sort code.
- The receiving bank settles the money into the correct account, using details like the account number. They perform Confirmation of Payee (CoP) to confirm everything.
FPS can work through one off payment initiations online, through telephone banking or via Standing Order. These are regular payments that are an alternative to Direct Debits, used commonly for subscriptions or recurring transactions like rent and bills.
Benefits of the Faster Payments Service for Businesses
The Faster Payments service is incredibly popular, with over 5 billion transactions processed this way in 2024. It’s not hard to see why, with speed, security and convenience advantages for businesses.
Speed
Faster Payments helps money to change hands electronically within only a few seconds, which is much faster than the other bank account products on the market. It reduces the number of intermediaries, and instead enables firms to act as direct participants. For businesses, this speed leads to better cashflow, and prime working capital opportunities.
By receiving faster payments from customers, for example, you’ll always be ready to pay your supplier invoices. This can build better merchant relationships and keep the supply chain running smoothly. Plus, organisations that get better visibility over their finances can improve operational efficiency.
Even at the longer time-to-pay window of up to two hours, faster payments are much quicker than market alternatives like Direct Debits, which take approximately three days to settle.
Security
The faster payments network has a number of built-in security measures to ensure payments are ending up in the right hands. This includes:
- Confirmation of Payee (CoP): a payer can check that the name (including a personal or business account indicator) they give for a new payee is the same as the account name and type check held by the payee’s PSP
- Anti-money laundering checks: use open banking data to prove the participants identity. Learn more about the UK’s 2017 anti-money laundering regulation in this article.
- Fraud monitoring: tracking financial activity and transaction behaviour for suspicious anomalies that go against the usual trends
However, it’s important to note that while the security standards are good, they may not be enough to completely wipe out the risks of fraud. Companies must invest in devising their own payment security strategies outside of simply meeting the industry standards in order to truly protect against cyberattackers.
Convenience
Thanks to the speed of Faster Payments, both senders and receivers have more flexibility around when they make their payments. This is perfect for casual C2C situations, like friends sending money to one another when they split the bill, for example.
But businesses can really take advantage of the convenience factor of faster payments by offering better payment terms than competitors. This goes a long way in winning new contracts, as those with favourable terms can use this as an advantage during tender processes and differentiate from the rest of the market.
Likewise, upon payment to suppliers, firms can retain working capital for longer by paying closer to the due date, without causing late payments. The convenience of the Faster Payments service is therefore useful in managing merchant contact.
Risks Behind the Speed: Why Faster Payments Require More Security
Due to the speed of Faster Payments, they are often irreversible. Theoretically, as soon as the money is sent in online banking, the receiver can transfer or withdraw it, preventing any sort of mandated payment reversal.
And in normal circumstances, this is absolutely fine. But if fraudsters have infiltrated any part of the process, then senders will have to simply accept that they have been scammed, and that there is no chance of ever recovering the funds from the banks or building societies.
This is the main drawback of Faster Payments compared to other methods, where slower processing rates can make it easier to pause, reverse and recover the money after a scam. In fact, it was the method used in 97% of authorised push payment APP scams in 2021.
Companies can take proactive anti-payment fraud steps to protect their supply chain with smart checks and controls, preventing fraudulent access. For example, before every payment (no matter the method) Trustpair validates account and payment details against external databases. By blocking outgoing payments in real time unless these details are validated without suspicious results, companies can protect their funds from scammers, and protect their supplier relationships.
Compliance & Regulatory Perspective
Faster Payments is regulated in the UK under the Payment Services Regulation (PSR).
The main rules center around payment and infrastructure security, and Payment Service Providers (PSPs) must regularly report their data to PayUK to meet reporting standards. This information includes reporting on APP scam frequency, and how quickly customers are refunded.
The regulators want to make Faster Payments as transparent as possible to encourage good industry standards, and therefore make many of these reporting metrics and legal instruments public.
The regulators recently brought in a change to the refund process after a scam has been identified. Now, the onus to refund is on both the sender and receiver banks, which means that they must split the cost. This aims to upgrade industry standards of PSPs with regards to customer treatment, ensuring that customers are more satisfied overall with the payment method.
What’s Next for Faster Payments in the UK?
It’s safe to say that Faster Payments uptake is continuing to grow, and overtook direct debit as the UK’s third most popular payment method in 2023. Now, experts are looking ahead to determine whether they will overtake debit cards and cash, the only two more popular payment methods, but it seems unlikely.
PayUK is looking to upgrade the Faster Payments network, including enhancing API connectivity and compliance to ISO20022 to guarantee instant payments.
The New Payments Architecture (NPA) has also been proposed by the PSR, looking to completely replace both BACS and Faster Payments in favour of an integrated and streamlined all-encompassing platform. In collaboration with the Bank of England, the change is expected to bring huge innovation to UK businesses.
“We want to see the NPA delivered in a way that drives innovation and competition in payment systems and benefits everyone – from big banks and retailers to local merchants and high-street shoppers. This can be done by boosting competition between existing and new payments services as well as enhancing resilience and security in payments.”, said the team from the PSR.
Using Faster Payments Safely
Faster Payments are a popular way to pay for consumers and businesses alike. Convenience, speed and security that benefit senders and receivers, but users should know the risks of APP fraud if they’re looking to implement FPS – more stringent checks are required for full confidence, like bank account ownership verification, which can be performed with Trustpair.
Learn more about payment fraud in the UK in our annual fraud study!
