What are Faster Payments?
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 features of the Faster Payments Service to those of other fund transfer systems such as Bacs and CHAPS.
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 type of payment processed via the Faster Payments Service. Each bank imposes its own limits on these payments, with some banks allowing Faster Payments of sums as high as £250,000. Another service, known as CHAPS, is available for larger sums. We’ll discuss the key differences later in the article.
By 2018, there were 21 banks and building societies participating in Faster Payments. The Faster Payments Service is currently free of charge for personal customers, although transfer time is not guaranteed (according to Barclays, payments can sometimes take up to 2 hours, although in practice they’re usually instant).
What type of payments can be made using Faster Payments?
The Faster Payments Service can handle four different types of payment. Here we will explain how each of these work:
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 branch. Payments can be sent 24 hours a day seven days a week, and the limit is usually up to £250,000 per transaction, 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 make Faster Payments. They can be done on your bank’s website, on a mobile banking app, via telephone banking, or at the bank branch itself.
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.
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 they 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.
This assumes that the receiving bank or building society also uses Faster Payments and that the amount being sent is within that bank’s limit (banks can choose to set their own limits, but £250,000 is often the upper limit).
If there is confusion over the identity of the sender, 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 a handy list showing each bank along with its transaction limits.
Faster Payments vs Bacs and CHAPS
Bacs is another common UK payment system. It differs from Faster Payments in a number of 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 arrival of the money 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 primarily used for high-value transactions that exceed the Faster Payments Service limits, or time-critical lower value payments, such as buying property.