Faster Payments: The UK Experience and Implications for the US

In 2008, the UK implemented its Faster Payments Service (FPS), a real-time settlement network of 10 banks. The benefits of FPS are expected to reach beyond speeding up individual payments. This includes being available 24/7/365, improving payment security, as well as facilitating B2B, P2P, mobile and international payments.

UK chose to build this new system rather than speeding up existing payment systems. Costs were modest - less than ₤200 million ($307 million) spread over 7 years, plus investment costs borne by each participating bank to connect to the network. Based on this UK experience, a publication from the Federal Reserve Bank of Boston describes implications for the US payment system.

The UK payment landscape in 2008, prior to FPS, was similar to the US today. It stands to reason that the benefits of faster payments in this country will be similar to those experienced in the UK. However, deployment in the US will be far more complicated given the larger economy and larger population. And while a handful UK banks implemented and funded the UK’s FPS system, the structure of the US banking system is significantly more complex with thousands of depository institutions.

It is also worth noting that the UK government ordered the system into existence back in 2003. Government mandates are likely to be a tough sell in the US, requiring many disparate stakeholders to put aside their differences to work together. So for the US, an important issue is the question of who would own and operate a US faster payment service - private banks, private nonbanks, a public-private organization, or the public via the Fed, US Treasury, or some other government body.