U.K. Faster Payments to Change Payments World

[R.A. Hettinga]

Once again, boys and girls, the closer we get to instantaneity, the higher
the systemic financial risk of identity-based transactions.

Fortunately, there *is* a way to do secure, instantaneous,
non-identity-based transactions. Right? Right? This thing on???

;-).

Thanks to Graeme Burnett for the heads-up.

Cheers,
RAH
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<http://www.financetech.com/printableArticle.jhtml;jsessionid=LPZ41LYC1VM3EQSNDLRSKHSCJUNN2JVN?articleID=202103702>

FinanceTech

U.K. Faster Payments to Change Payments World

Oct 01, 2007
URL: http://www.financetech.com/showArticle.jhtml?articleID=202103702

As the business world increasingly operates in real time, consumers expect
the same kind of fast, convenient services from their financial
institutions that they receive from retailers. In the U.K., the response to
this demand is the Faster Payments initiative. According to some experts,
the program may have a far-reaching impact beyond the shores of Great
Britain.

Faster Payments is designed to allow people to make same-day electronic
payments of their bills. The program is aimed at low-value payments of
about #10,000 (or US$20,000) or less. It was born of a working group formed
by the U.K.'s Office of Fair Trade (OFT) that included input from retailers
and other businesses, consumers and banks.

Alan Koenigsberg, VP for global in-country and ACH treasury services with
New York-based JPMorgan Chase ($1.2 trillion in assets), says U.K.
consumer-to-business electronic payments typically take three days to clear
via the BACS system, the U.K.'s automated clearing house. There was little
movement by U.K. banks to streamline the clearing process, however, until
2000, when an independent report commissioned by the government was issued,
he adds. The report found that most of the enhancements made to the
country's payment system had more to do with risk and cost reduction than
with improving customer service.

"The bank product managers were defensive about this at first because they
didn't think there was any competitive advantage in changing the clearing
cycle," Koenigsberg contends. "But the banks came around, especially on the
consumer-to-business side."

The OFT task force developed a framework that eventually morphed into
Faster Payments. "This is a hybrid payment method because it's a card-based
ACH system -- the payments run on the card rails," explains Koenigsberg. As
such, U.K. ATM network operator VocaLink (London) plays a vital role in
Faster Payments. "This is leveraging card-based technology on top of ATMs,
the Internet and, eventually, point-of-sale devices," Koenigsberg adds,
noting that the combination of technologies and channels results in faster
cycle times.

Although it is being used to optimize consumer channels, it is likely that
Faster Payments will move into the business-to-business payments space over
time, according to Koenigsberg. "If the minimum limit on payments is
raised, Faster Payments could take volume away from CHAPS [the U.K.'s
same-day high-value payments system]," he says.

'A Big Build'

Actually implementing Faster Payments, however, has been a challenge. The
initiative was set to go live this November but is now being delayed until
May 2008.

"For U.K. banks, this is a big build. They're building a new channel that
impacts their client-facing front ends ... and their back office because
they have to build new payment and settlement instruments," Koenigsberg
explains. "But there was a bit of future-proofing here -- by building such
robust systems, banks won't have to do so again for several years."

Once the final hurdles are left behind, Koenigsberg opines, Faster Payments
will serve as a model for the rest of the world. "This model would be
fabulous for SEPA," he asserts. "You can build a fantastic euro-based
Faster Payments service. ... I think Faster Payments will be a beacon of
change for other markets."

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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'