Rollout of the banking industry’s £300m faster payments (FP) project finally starts next month, but it will take time before the system is fully operational.

The new clearing and settlement service was mandated by the Office of Fair Trading (OFT), and will enable same-day processing of internet and telephone banking transactions for UK bank account customers instead of the current three-day timescale.

FP was due to be introduced by November 2007, but was unfortunately put back last year after delays in testing.

Critics have questioned the scheme because of the limited time for performing the necessary security checks on transactions, but banks expect that an initial transaction cap of £10,000 and a phased implementation will help mitigate fraud and settlement risk.

“The industry is not going for a big bang approach and we will deliver this project in stages, just as we did with chip-and-PIN,” said a spokeswoman for payments association Apacs.

“Not all customers will be able to send and receive payments under the timescales that have been talked about from day one,” she said.

The initial stage of implementation will focus on addressing operational issues, as well as staff training and customer response to the system, according to Apacs.

Under FP, a payment will only become definitive once it has passed through the bank’s fraud checks, which may initially take up to two hours. But processing times are expected to get faster in the next few months as banks’ systems are improved.

Royal Bank of Scotland’s (RBS’s) programme started two years ago and involves all areas of the business from telephone, online and branch banking to security infrastructure and gateways to the main FP platform.

The new system replaces some of the payments run over the Bacs network, so understanding new credit models and introducing processes such as shared intra-day account balance data across the bank’s channels posed a major challenge, said RBS head of product development Jane Barber.

But FP also gave the bank the ability to plan for future facilities such as mobile payments and possible replacements for cheque and paper credit.

“We may not do that from day one, but once FP is launched and operating properly, it will give us the springboard to bring a range of targeted products and services to market,” said Barber.

The same-day service provided a good business case for institutions to justify extra IT projects related to data security, said Deloitte partner Stephen Ley.

“The number of regulatory projects that banks have to grapple with in the payment area brings opportunities to introduce added security, with tools such as two-factor authentication and more resilient encryption systems,” he said.

Faster payments... in 60 seconds

• The Office of Fair Trading (OFT) created the faster payments (FP) programme in 2005, after it estimated banks were making £30m every year by not paying interest on money floating between accounts.
• After supplier VocaLink failed to meet the testing schedule, FP’s launch date of November 2007 was postponed to May 2008. Industry sources blamed unrealistic deadlines set out by the OFT.
• FP will cater for large volume increases projected for transactions made via internet and phone payments, channels which account for only four per cent of current automated payments.
• While FP is aimed at streamlining the UK payments industry, it is a cheaper payment method than other existing schemes such as Chaps. The widespread belief of banks ­ which had to invest heavily in IT to support the FP scheme ­ is that they will make less money as a result.