Firstly, what is a Faster Payment?

In 2008, a faster way to make payments came to the UK called (you guessed it) the Faster Payments System. This electronic transfer was designed to speed up the process of sending and receiving money.

Until now, Faster Payments have generally been used for everyday transactions. But new rules mean enterprises, SMEs, and consumers can make bigger, cheaper, and faster payments than ever before. So, what do these new rules mean for you?

Well, transactions over £250,000 used to be subject to lengthy and expensive CHAPS processing. Now, payments up to £1 million can be made in real-time via Faster Payments. This has the potential to unlock significant use cases for open banking payments.

Faster Payments vs alternative methods

Card payments

Card payments offer a high degree of convenience both in-store and online, and you can use them pretty much everywhere. But sometimes you might have to pay extra fees and there’s usually a limit on how much you can spend. Plus, cards have a lower success rate and higher risk of fraud.

Direct Debit

Direct Debit allows you to set up regular payments, like bills, to be automatically taken from your account on a certain date. While you won’t have to worry about missing a due payment, it also means a provider has permission to take money from your account regularly. But that’s all about to change with Variable Recurring Payments (VRP). Learn more here.

Standing Order

Similar to Direct Debit, a Standing Order is an automated payment set up for regular transactions like rent or bills. Once a Standing Order is set up, it can’t be easily changed or cancelled. And it can take a few days for payments to be processed, too.

CHAPS

Clearing House Automated Payment System (CHAPS) is used mostly for large-value, time-sensitive transactions, such as buying a house. Like the Faster Payment System, it takes place on the same day… but it’s much more expensive.

BACS

Bankers Automated Clearing Service (BACS) is mainly used by businesses for bulk transactions, like payroll. While it’s good at paying multiple people at once, it’s not good if you need to transfer money quickly (settlement is at least 3 working days).

Faster Payments use cases

High-value transactions

For enterprise and SMEs, raising the limit means less reliance on traditional methods - like cash or physical checks - for large-value invoices. For consumers, significant lifetime purchases such as buying a house or car can now be made via Faster Payment, creating an easier and more convenient user experience.

Streamline verification checks

And it doesn’t stop there…open banking data can support Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. For instance, a customer purchasing a house will need to undergo identity verification and show proof of funds. Open banking makes it easier for customers to share their financial information, like account data and income, to simplify the process.

Cover payroll in one transaction

Let’s face it, SMEs are still underserved when it comes to their payment needs. While individual payments can be relatively painless, making multiple payments at once can become far more complex. The increased Faster Payment limit means the entire employee payroll could be covered in one smooth transaction

Looking ahead

As the underlying real-time payment capability improves, it unlocks more possibilities for payment use cases. This means service providers can offer more unique and effective options for their customers. And ultimately, create better user experiences for everyone in financial services. Win-win!

Wondering how you can capitalise on the opportunity created by the new limit? Get in touch to learn more about how Yapily can help.