Last editedNov 20224 min read
If you’re doing business in the UK, you’ll know that sending money from your bank to another bank is usually an immediate process. In this article, we’ll explore how this is achieved via the UK’s Faster Payments Service (FPS). We’ll also compare the features of the Faster Payments Service to those of other funds transfer systems such as Bacs and CHAPS.
What are Faster Payments?
A Faster Payment is a type of electronic transfer designed to speed up the process of sending money within the UK. The Faster Payments Service was introduced in May 2008. Its goal was, as the name suggests, to reduce payment times of bank-to-bank payments.
Everyday transactions are the most common payments processed via the Faster Payments Service. As of February 2022, PayUK, owners of the FPS system, will allow transactions of up to £1m to be sent via FPS, with each participating bank imposing its own limits. Another service, known as CHAPS, is available for larger sums. We'll discuss the key differences later in the article.
As of August 2022 there are over 40 institutions participating in the Faster Payments Service. The service is currently largely free of charge for personal customers, but business customers will pay a fee depending on their usage and their bank's fee structure. However, transfer time is not guaranteed - for example, according to Barclays, payments can sometimes take up to 2 hours, although they're usually instant in practice.
What type of payments can be made using the Faster Payments Service?
The Faster Payments Service can handle four different types of payment. Here we will explain how each of these works:
Single immediate payments: The most common type, customers initiate these payments as one-off payments, either via mobile banking, online banking, phone banking, or in the branch. Payments can be sent 24 hours a day, seven days a week, and the limit allowed by the system is up to £1m per transaction. However, this is subject to individual bank limits.
Forward-dated payments: These are one-off payments sent and received on a prearranged date decided by the customer, for example, for paying a bill.
Standing orders: These are regular payments that pay a set amount to the same recipient on regular dates, for example, on the first day of the month.
Direct corporate access payments: A service for business customers in which payment messages can be sent directly to the Faster Payments Service in the form of bulk files. Processing time and transaction limits are the same, and various software solutions are available to provide the service to businesses.
How do Faster Payments work?
There are lots of methods available for customers to be able to send Faster Payments, you can use:
your bank’s website
a mobile banking app
via telephone banking
at a bank branch
It’s worth noting that some banks and building societies still can’t receive Faster Payments, so it’s worth checking the sort code before attempting to make a payment. Here’s a useful sort code checker.
Are Faster Payments Secure?
Although Faster Payments are quick and convenient, banks do a lot of work behind the scenes to maintain security while processing the transaction.
For example, let’s say your business needs to pay £1,000 to one of your suppliers. First, you instruct your bank to make the Faster Payment via one of the methods mentioned above. The bank will verify your identity, usually asking for your password.
Next, you provide your supplier’s sort code and account number, used as an identifying address for the Faster Payment. It’s common to include a reference to identify the payment on your supplier’s bank statement, which often describes the purpose of the payment.
Your bank will check you have enough funds before making the payment. If the bank is unsure of your identity, it will hold the payment and perform additional checks. After doing so, it will send the funds to your supplier via Faster Payments.
The Faster Payments Service checks the payment instructions and forwards them to your supplier’s bank, known as the receiving bank. The receiving bank then checks that the account number is valid and informs the Faster Payments Service that it has accepted the payment (it may reject it).
The Faster Payments Service then credits the receiving bank with the funds, then informs your bank that the transaction is complete. Your bank will then inform you of the payment status, Your supplier’s bank will then be credited with the funds.
How long do Faster Payments take?
Normally, a Faster Payment arrives within minutes, although sometimes it can take up to two hours. A Faster Payment will always be credited by the end of the following business day, assuming you’re making the payment to another bank or building society that’s also a member of the Faster Payments scheme.
It is required that the receiving bank or building society also use Faster Payments, and the amount sent is within that bank's limit (banks can choose their own limits of up to the £1m allowed by the system).
If there is confusion over the sender's identity, the banks will need to perform extra security checks, which may delay payment further.
Faster Payments can be made and received 24 hours a day, including weekends and bank holidays.
Transaction Limits of Faster Payments
These can vary according to whether you are making a Faster Payment from a personal account or a business account. Each bank or building society sets its own limits for both types of transactions. The Faster Payments website has handy lists showing each bank along with its transaction limits for both Business and Personal transactions.
Faster Payments vs Bacs and CHAPS
Bacs is another common UK payment system. It differs from Faster Payments in several ways, primarily the speed. Bacs payments take place directly from one bank account to another and are mainly used for handling Direct Debit and Direct Credit payments from organisations. Unlike Faster Payments, Bacs payments normally take three working days to clear. If you pay into someone’s account on a Monday, then the money will clear by Wednesday.
CHAPS is another UK same-day payment system that guarantees the money's arrival on the same day. There’s a £25 fee per CHAPS payment (although some banks offer CHAPS free of charge for premium account holders). CHAPS is used primarily for high-value transactions.
Financial institutions and the largest businesses use CHAPS to settle money market and foreign exchange transactions and pay suppliers and taxes. Solicitors will also often use CHAPS to complete housing and other property transactions, while individuals use CHAPS to buy high-value items such as a car or pay a deposit for a house.
Which banks and financial organisations are directly connected with Faster Payments?
All UK banks and building societies are now able to both send and receive Faster Payments, either directly or via a sponsor bank. Below is a list of direct participants:
|The Access Bank UK||Atom Bank||Bank of Scotland|
|Barclays||BFC Bank||Cashplus Bank|
|The Co-operative Bank||CreDec||Danske Bank|
|Lloyds Bank||Metro Bank||Mettle|
|PayrNet by Railsbank||PPS||Prepaid Financial Services|
|Revolut||Royal Bank of Scotland||Santander|
|Equals Money||Square||Starling Bank|
|Tesco Bank||TSB||Turkish Bank UK|
|Ulster Bank||Virgin Money||Wise|
Case study: Gravity - getting paid faster
For most UK SMEs, access to Faster Payments business service is not a realistic proposition, but developments in open banking mean that it is now easy for businesses of all sizes to get paid faster with Instant Bank Pay.
Gravity, a trampoline park business, switched from accepting a combination of card payments which was expensive, and Direct Debits, which took too long to clear the first payment, to Instant Bank Pay via GoCardless.
As a result of using Instant Bank Pay, Gravity was able to:
save 50% on transactions fees
reduce customer sign-up time by 55%
get 90%+ new customers to use Instant Bank Pay
make sign-up easier and quicker for customers
prevent subscription cancellations and subsequent revenue loss
Watch the short video below: