Faster Payments Limit Quadruples from £250K to £1m

There was a time when it always took three days to transfer funds between bank accounts - and it was more recent than you might think. Back in 2008, payments were still weighed down by antiquated processes and systems, causing them to move at a snail's pace. The world was moving on, powered by the internet and the arrival of the smartphone - but the payments industry was struggling to keep up. Enter the Faster Payments Service (FPS): a type of electronic transfer, designed to speed up the process of sending money by facilitating bank-to-bank payments in near real-time 24 hours a day.

There was one problem: the launch of the world's first 24/7/365 fast payments system fourteen years ago coincided with the most pernicious global financial crisis since the Great Depression - shoving the new FPS off the corporate agenda as businesses went into survival mode. Despite this early stumbling block, the value of the FPS was eventually recognised by businesses and consumers alike: in December 2014, 100 million payments were sent in a single month across all payment types for the first time; by July 2015, 5 billion payments had been processed in total; and in November 2015, the maximum value that could be sent was increased to £250,000.

The FPS is going from strength to strength as it continues to satisfy society's ever-growing demand for speed and convenience in the digital economy: in 2021 - amid the pandemic when physical transactions were off-limits - a record amount of Faster Payments were processed in a single year, skyrocketing by 20% from 2.9 billion payments in 2020 to over 3.4 billion. An eye-watering amount that is facilitated by 37 institutions that are directly connected to the FPS.

These numbers are showing no signs of abating after FPS owners Pay.UK announced that they’re increasing the payment limit from £250,000 to £1 million from February 2022 - with each participating bank imposing its own limits depending on how the payment is sent and the type of account their customer is sending from. This reflects demand from corporate customers and diversifies the market for organisations wanting to make higher-value payments.

A Pay.UK spokesperson said: “Therefore, some customers of some banks and building societies might be able to make higher-value Faster Payments - individual payment service providers (PSPs) make their own competitive decision on the amount their customers can send within the £1 million limit.”

Benefits of the FPS

The FPS satisfies the three top requirements for anyone making an electronic payment: speed, convenience and security.

Speed

• One-off payments that are processed almost at the touch of a button.
• Recipients typically receive funds almost immediately - although they can sometimes take up to two hours.
• Available 24/7 - although some banks may not guarantee payments on weekends.
• Leverage technology within mobile apps or online financial/bill payment service websites, allowing end-users to make payments without physical interaction - a plus during a pandemic.
• Send and receive payments of up to £1 million depending on the payment limit of your bank or building society.

Security

• Only available to banks, building societies and payment providers that meet strict security requirements.
• Victims of fraud are protected from losses caused by unauthorised payments.

Types of Faster Payments

Four types of payments can be processed through the FPS:

• Single immediate payments: This is the most common type of payment under the FPS. Customers initiate these one-off payments, either via mobile banking, online banking, phone banking or in-branch. Payments can be sent 24/7 up to the £1 million payment limit - subject to individual bank limits.
• Forward-dated payments: These one-off payments are 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: This service for business customers allows payment messages to be sent directly to the FPS in the form of bulk files. Direct corporate access is available 24 hours a day, with payments sent via Faster Payments for same-day transmission to receiving customers. Payment files are inputted via a secure-IP solution using the same standard file format as BACS transactions. Not all FPS participants offer direct corporate access, but offer alternatives for their business customers.

FPS for businesses

Businesses should not take the FPS for granted. There was a time - not so long ago - when the only options were to either send a cheque that took days in the mail and then days to clear once deposited; or make an international funds transfer that would pass through several banks, each taking a ‘lifting’ fee as the funds meandered from sender to recipient.

They should thank their lucky stars for the opportunities the FPS offers their business:

• Improved real-time money management and cash flow.
• Less likely to deal with a payment reversal due to insufficient funds, because faster payments typically involve a “credit push” - they require the payer to have sufficient funds in their account before the payer can make the payment.
• They are final, so the payee is assured of receiving the funds.
• Facilitates time-sensitive payments.
• Integrating the FPS with the business workflow lets them set up a payment system they can trust.
• They make businesses more agile thanks to 24/7 availability.
• End-to-end encryption and advanced IP security secure payment information.
• Each payment is subject to multiple legal protections that are implemented to minimise fraud and help businesses stay protected at all times.
• Each transaction is executed immediately and settled almost immediately, meaning businesses always have the latest account balance - which makes monitoring business finances much easier.
• Offers a convenient alternative to the frequently used CHAPS payments, which must be set up in-branch or by phone before 3.30pm (or online before 5pm) to receive them the same day.

The new £1 million payment limit is the latest in a long list of business benefits of the FPS. This represents another important milestone for the payment industry and further cements the value of the FPS. The quadrupling of the limit will be welcomed by corporate users with escalating payment requirements - from buying property to paying staff and suppliers - and will expand the adoption of the FPS over other schemes in the UK, especially CHAPS.

FPS for individuals

The FPS provides consumers with flexibility by allowing them to harness the power of technology to manage money in real-time - and the benefits are compelling:

• Enables them to transfer money between accounts, pay a bill, a business or another person almost instantaneously - 24/7.
• Fewer late fees.
• Less need to run to the bank.
• Less need for short-term, high-cost products such as overdraft or payday loans.
• Reduces the risk of damage to their credit scores.

The new £1 million faster payments limit has caught the attention of individuals with financial muscle - and an eye for luxury. Whether they’re buying a yacht in the Med, a supercar in Monaco or a watch in Switzerland, this has provided them with the ability to flex their muscle in real-time 24/7.

Currency risk exposure

Faster Payments can also be made via a global payment platform. These international payments expose the sender - whether it's an international business making an instant payment to kickstart the shipping process or an individual purchasing art in Italy - to currency risk.

Currencies are traded around the clock - 24 hours a day. Therefore, the value of the pound against other currencies is constantly changing - not just daily but by the minute. Why do they fluctuate in value? Currencies strengthen and weaken each day because banks and investors purchase huge volumes in response to political and economic news: positive news about a country typically causes the value of the currency to rise (“strengthen”), while bad news causes it to fall (“weaken”).

We also know when they might move because we often know the timing of political events that might influence them, and the economic calendar shows us when influential economic data will be released. However, there will also be news that happens without warning - anything from a US president tweeting late at night to a fall in the price of bauxite.

What we cannot predict – and no one can – is whether they will move up or down or by how much. Even slight fluctuations can make a big difference to the price of your international payments. In some instances, the impact of the political and economic variables that influence exchange rates can be severe, as has been proved in recent times. For example, back in March 2020, when the true extent of the Covid-19 pandemic became clear, the pound sunk to its lowest level against the dollar since 1985 and its lowest level against the euro since the depth of the financial crisis 11 years earlier.

Before the pandemic struck, this exposure to currency market risk had the potential to drive up the cost of sending money overseas if left unaccounted for. Since then, however, the importance of mitigating the impact of exchange rate fluctuations on the cost of your international payments has been magnified. This has brought the need to seek the services of a currency specialist into sharp focus for businesses and individuals.

Clear Currency

Clear Currency specialises in helping businesses and individuals that are exposed to currency market risk save money when making international payments - both large and small.

Transferring large sums of money into another currency and transferring them overseas can be daunting and confusing. Aware of this, we use our knowledge and experience to cut through the jargon and provide you with a friendly and personal service.

We recognise that it’s impossible to accurately predict how exchange rates will perform; therefore, it’s prudent to plan for all eventualities. With this in mind, we will assign you a dedicated account manager. In addition to helping you benefit from quick, easy, reliable and secure transfers from our intuitive payments platform, they can help you mitigate the impact of currency risk on your international payments.

Your account manager will work in partnership with you throughout the international payment process. For example, a business that regularly transfers money overseas will be faced with varying costs each month due to the dynamic nature of the currency market. Therefore, they will want to secure the most favourable exchange rate.

Because fluctuating exchange rates make it hard to judge how much you’ll pay at any one time, your account manager can help you execute a forward contract to secure the cost of your payments. This allows you to lock in an exchange rate for a date in the future, securing the price of your international payments when the time comes to execute them.