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Faster payments: New access model in the UK

Creating a competitive market in access services for real-time, 24/7 payments.

Overview

Growing pressure from consumers, small businesses and corporates is driving the need for immediate payments that are available 24/7, to the extent that real-time payments have become a prerequisite for any core current account or payment account provider in the UK.

Currently, for payment service providers (PSPs), the only way to achieve this is by gaining direct technical access to the Central Infrastructure provided by Faster Payments Scheme Limited (FPSL). However, this often proves to be a costly option - especially for new entrants and smaller PSPs who lack the volumes to justify the initial investment.

FPSL’s vision is to provide a viable option, whereby a PSP can connect to a technical aggregator that combines demand from multiple PSPs, creating economies of scale. Using this new model, PSPs can get a guaranteed real-time payments service, available 24/7, at a lower per-transaction cost than the PSP can achieve by connecting directly to the Central Infrastructure. This report evaluates the potential for a new, competitive and sustainable market for these aggregators.

Background

In today’s world, the speed and convenience of digitally enabled services and transactions are shaping consumer needs and expectations. It is no longer enough for a current account provider to offer its customers a debit card. Customers are seeking and demanding 24/7 access to real-time payments.

This growing pressure on banks and non-bank PSPs that do not currently offer their customers 24/7 real-time payments is driving the creation of a new generation of payment propositions that capitalise on real-time payments through the Faster Payments Scheme.

Faster Payments statistics show that almost half of real-time payments in the UK occur outside traditional business hours. The ability to provide 24/7 access to real-time payments is becoming a critical success factor for any PSP that is serious about competing in the payments marketplace of the future.

Analysis

Currently, PSPs can access Faster Payments using two different access options:

  • The Direct Membership Model: This model guarantees real-time access to Faster Payments at any time by establishing direct technical access to the Central Infrastructure. However, it requires significant upfront investment, and is used only by the FPSL members and a large non-bank PSP.

  • Indirect Access via a Sponsor: Four of the FPSL member banks offer a traditional sponsor service for approximately 400 indirect participants. While this model involves a lower upfront investment, it does not guarantee real-time payments and 24/7 availability, denying PSPs full control and surety of its payments.

Accenture analysis shows that the volume of Faster Payment transactions is likely to at least double—and could easily triple—over the next five years, from its 2014 level of 1 billion transactions. A significant portion of these transactions is likely to be generated at agency banks not benefiting from a guaranteed 24/7 real-time proposition. Clearly, there is an opportunity to provide 24/7 real-time payments to agency banks and non-bank PSPs at a competitive and compelling cost.

Recommendations

With the two existing options for accessing Faster Payments, challenger banks and non-bank PSPs that currently have low Faster Payments volumes are caught in a ‘Catch 22’ situation.

While their short-term economic challenges prevent them from adopting the direct membership model, the drawbacks of the indirect access model hamper their longer-term ambitions to grow Faster Payments volumes.

Accenture supports the belief that a third option can be provided whereby a PSP can connect to a technical aggregator that combines demand from multiple PSPs, creating economies of scale.

This new access model is likely to reduce the barriers to entry for new PSPs substantially, by making 24/7 access to immediate payments economically attractive at lower volumes.

Moreover, it will help PSPs with low volumes of Faster Payments transactions break out of their ‘Catch-22’ situation and fulfil their growth ambitions.