24 August 2008

Adrian Stafford-Jones, managing director of Albany Software describes the UK Faster Payments service, and the benefits it’s bringing to banks.

In May 2008, the UK banking industry delivered the Faster Payments initiative, offering business a near-real time payment system for sums up to £10,000. Crucially, this service is available at a fraction of the cost of Chaps transactions, the established fast payment option.

The UK Faster Payments service facilitates almost real-time payments through a service similar to Bacstel-IP using a secure IP network for Bacs Direct Credit submitters. It is available through Internet and telephone banking and reduces transaction costs, allowing businesses to take advantage of cash-only or instant payment offers at the touch of a button. The money saved in banking costs will prove substantial and free up capital resource across the entire business network.

Yet the service has prompted only modest interest from the UK business community, and the majority of banks and businesses appear to view it as simply a lower cost alternative to traditional Chaps transactions.

This attitude completely overlooks the true potential of Faster Payments to transform day-to-day operations within UK business. The Chaps replacement market represents only a fraction of the opportunity. Indeed, the potential for huge volumes of Faster Payments transactions is significant if businesses and banks work together to deliver valuable business and process change.

Across the Channel, European businesses are green with envy that UK industry can now facilitate low cost, faster payments. Still awaiting the Single Euro Payments Area (SEPA), the European version of the UK’s Bacs system, many European businesses are now lamenting the fact that, in its initial deployment, SEPA will not include Faster Payments.

The evolution in purchasing over recent years has created massive demand for rapid payment solutions. With a growing proportion of goods now purchased online, there is a clear business imperative for a payment system that propels rather than impedes today’s business practices.

Business moves more rapidly today than it ever has before and will only get faster, with payment systems in danger of lagging behind. The traditional three-day transaction process is simply not good enough to support the need for rapid decision-making, purchasing and payment. The only viable real-time alternative, the credit card, is far from ideal and increasingly expensive.

Faster Payments may not yet have resulted in the deluge of transactions that was predicted, but it will bring countless advantages to switched-on businesses

Adrian Stafford-Jones, Albany Software In an increasingly difficult economic climate, the opportunity to take greater control of spending should be compelling. With the growing trend toward organisations charging back the cost of credit card transactions to the purchaser, costs are spiralling. With the low-cost Faster Payments option, the entire process can be handled centrally, reducing both costs and the anarchic spending associated with credit cards.

Similarly, Faster Payments allows companies to take far greater control over the payments process: rather than using Bacs, Direct Debits or cheques, organisations can time payments to suit cash flow to the minute.

Every business transfers money to pay staff and suppliers, and every business is currently vulnerable to bouncing cheques, or an inconvenient gap between making a payment and waiting for funds to clear. Faster Payments eliminates these anxieties and saves significant amounts of capital, positively affecting margins and allowing managers to react quickly to cash offers, pushing profitability yet further.

The ability to make immediate payments enables businesses to address a variety of issues that arise on a day-to-day basis – from renewing the overlooked maintenance subscription to enabling staff to receive support, to taking advantage of short-lived offers without incurring excessive transaction costs.

Furthermore, any organisation paying temporary staff can leverage Faster Payments to gain competitive advantage. In a business dependent upon retaining staff, the speed with which timesheets are processed and wages paid is a key differential. Using Faster Payments, agencies will be able to pay staff up until Thursday, rather than Tuesday, each week while ensuring wages reach staff accounts by Friday, delivering a good motivation for staff loyalty.

The opportunities for transforming cash flow and gaining control over the payment process are significant, driving the potential level of Faster Payments transactions far beyond the limited market of a Chaps replacement. So why have so few firms tried to understand its potential or its implications for existing business processes?

Without doubt the banking industry set an overly ambitious timetable that was vulnerable to delay. In taking this approach, it inhibited the momentum for Faster Payments adoption. Add to this the disinterest of the business world as a whole and the result, when the system was made available in May, was an underwhelming debut of few initial transactions.

But the slow start is already giving way to a rapid uptake. It is essential that UK businesses grasp the opportunity offered by Faster Payments, especially in an economic climate that is putting ever-increasing pressure on profit margins.

Now is the time to assess the potential for Faster Payments, from imposing centralised purchasing control to improving cash flow. With this understanding in place, organisations can work with software suppliers and banks to determine Faster Payments pricing and achieve a clear direction on potential accreditation and software requirements.

Faster Payments may not yet have resulted in the deluge of transactions that was predicted, but it will bring countless advantages to switched-on businesses. 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.

This article first appeared in the 2008 edition of the Finance on Windows Partner.

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