Faster payments save money

Adrian Stafford-Jones looks at how the banking industry's Faster Payments initiative will benefit UK businesses as well as consumers

Replacing up to 16 million Chaps payments with a Faster Payment transaction represents a significant saving

Excellent financial management is the key to successful business, especially for smaller organisations. But when relying on the three-day Bacs payment process, just how easy is it to achieve highly effective financial management?

For those that miss the Bacs deadline, the alternatives are either to use a cheque or opt for the expensive next-day Chaps payment, which can cost up to £30 per transaction. For organisations that often have to use the very latest information to make payments, such as payroll bureaux and local authorities, these traditional options are far from ideal.

There is a clear demand for a lower cost, faster payments process. Indeed, current European Union targets will push payments towards a two-day process over the next couple of years. The UK banking industry will also be introducing a Faster Payments service in May 2008 to allow sameday sterling payments to be made.

While banks are focusing on the consumers for this service, faster payments will also be available via a service similar to BacsTel-IP for Bacs Direct Credit submitters.

In part, the lack of corporate focus on faster payments can be attributed to the £10,000 limit placed on each transaction. But a belief that business transactions are primarily greater than £10,000 is misplaced. According to the Bank of England Financial Stability Review, of the 32 million payments made via Chaps annually, half are less than £10,000.

The transaction cost associated with the Faster Payments process has not been confirmed, but it is expected to be considerably less than Chaps. In which case, replacing up to 16 million Chaps payments with a Faster Payment transaction represents a significant saving.

It is likely that organisations will have to go through the typical, drawn-out application procedures with each bank to attain Faster Payments authorisation. Therefore, while the opportunity to leverage this new service will not come into force until next year, it is worth preparing a business case sooner rather than later.

So, while the banks may think Faster Payments is primarily about the consumer, there are very real opportunities here for UK businesses to leverage their investment in BacsTel-IP to use secure IP to achieve quantifiable improvements in financial management.
Adrian Stafford-Jones is managing director of Albany Software.