Mike Banyard, Head of Development, Faster Payments Scheme, discusses Faster Payments at the "How to Start a New Bank" Seminar hosted by Fiserv.

1. Developments in Faster Payments
Mike Banyard
Head of Development, Faster Payments Scheme
Limited
June 2015

2. 2
Why choose a Faster Payment
Faster Payments is the only UK payment system available
day and night, 365 days per year, supporting the demands
of personal and business customers, ensuring it is the best
choice for moving money at any time, simply, quickly and
reliably.
With direct access, payment is made in real time with real
time confirmation of delivery.

3. 3
All of which takes place in anything from fractions of a second to days
Remitting
Customer
Choice of
service
Payment
given to bank
Receiving
bank
Beneficiary
customer
Confirmation
of Payment
Bank Executes
PaymentSending bank
1
2
3
4
5
6
7
8
9
10
11
How does Work?

4. 4
System Design – Deferred Net Settlement System (DNS)
- Immediate payments made between members (< 10 seconds)
- Irrevocable
- Credit risk passes from end customers to customer’s banks
- Multilateral Net Settlement 3x per working day via Bank of England Real Time
Gross Settlement (RTGS) system
- Member and scheme credit and liquidity risk managed via pooled collateral
and liquidity and loss sharing agreement
- Hard net sender caps contain risk transaction-by-transaction
Settlement

5. 5
• New model, being introduced in 2015, will replace the existing Liquidity and
Loss-Sharing Agreement with a model whereby each participant will place a
sum equal to the size of their Net Sender Cap in a specific account at the Bank
of England
• This account would only be used in the event of default on the participant’s
main settlement account
• The model removes any settlement/credit risk for other participants
• The new model ensures that ONLY the defaulter pays
• Will continue to operate with 3 cycles per working day, as our modelling
indicates that this maximises the use of liquidity
Settlement Risk Model

6. 6
Faster Payments monthly volumes 2008 - 2015
Greater value
and volume
than paper
cheque and
credit
Uptake
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
100,000,000
110,000,000
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
Standing Orders & Returns
Forward Dated & DCA
Single Immediate Payments

7. 7
Faster Payments monthly values (£billions) 2008 - 2015
Greater value
and volume
than paper
cheque and
credit
£0
£10,000,000,000
£20,000,000,000
£30,000,000,000
£40,000,000,000
£50,000,000,000
£60,000,000,000
£70,000,000,000
£80,000,000,000
£90,000,000,000
£100,000,000,000
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
Single Immediate Payments
Forward Dated & DCA
Standing Orders & Returns
Uptake

8. 8
Now 10-20%
of Bulk
Payment
volume
Greater value
and volume
than paper
cheque and
credit
Timeline; notable events
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
100,000,000
110,000,000
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
Standing Orders & Returns
Forward Dated & DCA Payments
Single Immediate Payments
FP launched on 27
May 2008. 1st new
payment Service to be
introduced in the
UK for more than 20
years.
100 m FP
processed
DCA
introduced
500 m FP
processed
Transaction
limit
increased
from £10k to
£100k
1bn FP
processed
DCA
extended to
24*7
PSD D+1; resulted in
the migration of any
remaining bill
payments and
standing orders to
FPS
2bn FP
processed
3bn FP
processed
4bn FP
processed
1st 100m
FP month
Record FP
month

9. 9
*Determined by risk appetite of
each institution
Scope of the Service
£10,000 -
£100,000 daily
customer limit*
- 11 directly connected institutions
- 400+ indirectly connected institutions
- 49m current account holders
- 90m individual addressable accounts
- 100m+ payments processed per month
£100,000
transaction limit
£10,000 -
£100,000 daily
customer limit*

10. 10
Service Offering
Payment types Monthly Volume Average Value
Single Immediate Payments
(Synchronous)
62.3m £847
Forward Dated Payments
(Asynchronous)
13.9m £1,886
Standing Order Payments
(Asynchronous)
30.8m £315
Total 107.0m £828
Scope of the Service

11. 11
• Current Account Switch Service (CASS); real-time redirection of payments –
delivered Autumn 2013
• Paym – delivered April 2014
• Overlay services – ongoing developments
• Weekly payroll
• Supply Chain Management – “just in time” stock management
• Merchant Acquirer Payments – delivered December 2014
• TPPs (PSD2 legislation) – TBC
• New Access Model
Laying the Rails for Innovation

12. 12
Just In Time Stock Management
- Move from holding ££££s of stock to ordering as and when needed
- Frees up working capital
- Reduces need to discount surplus/obsolete stock
- Reduces risk, so can reduce margins (or increase profit)
Laying the Rails for Innovation

13. 13
Scheme Limit Review
• At launch, £10,000 for SIP and FDP, £100,000 for Standing Order
• 2010 moved to a flat £100,000
• Future increases planned at a Scheme level, dependent on implementation of
prefunded settlement – plan to go to £1m in 1 or 2 steps
• Will be Member decision as to what they offer customers (based on risk
appetite, customer demand etc.)
Into the Future

14. 14
Current Market Challenges
• Unlike other Schemes, FPS quickly exposes the downsides of indirect access
o Bacs & CHAPS services work, broadly, the same in terms of timings etc.,
regardless of method of access
• Existing connectivity models for Indirect Agencies stems from legacy
developments (SWIFT/Batch file), and are not able to keep up with the need for
speed
• Cost of developing the necessary connectivity currently prohibits all but a few
from joining
Into the Future

15. 15
New Access Model
Confidential - Faster Payments Scheme Limited
1. Market Context
2. The New Access Vision
3. Benefits
4. Target Market and PSPs
5. Vendors
6. The Access Programme
7. Key Considerations
8. Next Steps

16. 16
Total Market
c.1,950 Million
c.120
Million
Total Market
c.2,540 Million
c.175
Million
Total Market
c.3,280 Million
c.270
Million
FPS Transaction Volumes – Total Market vs Potential Market, 2020E
Millions of Payment Transactions
The potential market for providing 24/7, real-time payments could easily grow to at least c.270
million transactions by 2020
“Likely Scenario”
FPS Growth = 20%
“Conservative Scenario”
FPS Growth = 15%
“Adverse Scenario”
FPS Growth = 10%
Total Market
c.1,100 Million
53
Million
“Today”
20202014
c.8%c.7%c.6%c.5%
% Market Share of
Potential New
Access Market(1)
Total Market vs Potential Market
Confidential - Faster Payments Scheme Limited
“Without access
to 24 / 7 real-time
payments”
Note (1): Existing direct members could additionally benefit from new access. A technical aggregation solution could be leveraged in any future enhancement to a PSPs IT infrastructure – the potential market for
new access could therefore be substantially higher

17. 17Confidential - Faster Payments Scheme Limited
FPSL Vision
Central
Infrastructure
(VocaLink)
Citi
Co-Op Northern
Nationwide
Barclays HSBC LBG RBS
Clydesdale
Santander
Banks Building Societies Payment Institutions EMIs*
Members – Direct Participants
Indirect Participants
Sponsor Banks
Direct Technical Participants –
Settling and non-Settling
Banks
Building Societies
Payment Institutions
EMIs*
Aggregators
*electronic money institutions
new!

18. 18Confidential - Faster Payments Scheme Limited
A New, Third Option – Access Through an Aggregator
1. Access through an
Aggregator
3. Indirect Access
Through a Sponsor
Features
• Connect real-time, through a 24x7 aggregator service
• Self-settle at the Bank of England, or through a settlement
sponsor bank
• Connect indirectly through a sponsor bank
• Settle through the sponsor
2. Direct Participation
• Connect directly, real-time, 24x7 aggregator service
• Requires gateway capability
• Self-settle at the Bank of England
new!
Real-time, 24/7 Customer Proposition
Same Day, Non Real-time, <24/7 Customer Proposition
Note - there is also the option for direct agency access with a sponsor bank, with direct technical access and a real-time authorisation step with the sponsor
bank, but this is likely to be superseded in the New Access Model

19. 19
How to Access Faster Payments
FPSL
Central
Infrastructure
Directly
Connected
Self-Settling
Settling Sponsor
Credit
Institution
Non-Credit
Institution
Established
Direct Bank PSP
Prospective
Challenger Bank
Non-Bank
PSP
Operating
Agency Bank
Prospective
Challenger Bank
Credit
Institution
Non-Credit
Institution
Non-Bank PSP
Non-Settling Connected Participant
Settling Connected Participant
Sponsor
Credit
Institution
Non-Credit
Institution
Non
Self-Settling
Indirectly
Connected
Operating
Agency Bank
Prospective
Challenger Bank
Non-Bank PSP
Non-Settling Non-Connected Participant
e.g EMI
e.g. PI
Newly enabled access
through Aggregators
Real-time &24/7
Non Real-time &
Non 24/7
Subject to BoE
eligibility criteria
change otherwise
Non-Self-Settling
Net Sender Caps
required for Wave 3
Wave 1
Wave 2 if able to
self -settle and able
to pre-fund with
BoE otherwise
Wave 3
All Wave 3 or
Wave 1
based on
PayPal Model
• Barclays
• HSBC
• LBG
• RBS
Non
Self-Settling

20. 20Confidential - Faster Payments Scheme Limited
The benefits to PSPs of the aggregator option are in the customer proposition, as well as
strategic and economic
Customer Proposition
Economic
Benefits
• Guarantee real-time payments for customers
• Guarantee 24x7 availability to customers
• Enable real-time payment confirmation to senders
• Enable mobile payments through Paym and extend Paym access to
non-banks
• Potential to reduce the cost per transaction
Strategic
• Increased choice – between existing sponsors and multiple vendors
• Improved control and surety of payments – e.g. information on payment
acceptance is immediately available
• Independence - avoid dependency on a service from a competitor
(sponsor bank)
• Improved security of supply (of access to FPS)
• Improved security holding funds at the BoE instead of at a sponsor
• Separated settlement from access giving increased choices for
settlement, including self-settling at the Bank of England
• Improved flexibility to switch

21. 21
Agency Bank & Non-Bank PSP – Access Model Comparison
Total Cost per
Transaction over
5yrs
PSPs can choose between a sponsor bank, or not, based on the customer proposition, and
between direct participation or aggregator access based on cost, dependent on volume
Average Annual FPS Transactional Volume
Millions
In addition to guaranteeing 24/7 real-time payments for PSPs, the New Access Model is also
expected to result in lower total cost per transaction over a specified range of transactional
volumes (typically 1.5m – 13 txns per year, averaged over 5 years)
Sponsor Model (same day /
non-real-time)
New Access
Model (real-time)
Direct Participation (real time)
Confidential - Faster Payments Scheme Limited
Illustrative
Though being more costly at
low volumes, New Access
does guarantee access to
real-time payments

22. 22
Target PSPs
Access
Same Day
End Customer
Proposition
Real Time
End Customer
Proposition
Overseas Bank
in London
Correspondent
Bank
Savings & Loans
Institution
Non-Bank
PSP
Bank
PSP
Prospective
Challenger Bank
Operating
Agency Bank
Established
Direct Participant
= priority target segments
= potential target segments

23. 23
Interested Vendors
Vendors
• Vendor software needs to be accredited
by FPSL to connect to the Central
Infrastructure
• Three accredited vendors are targeted for
year-end 2015
• No vendors are accredited yet
• Accredited vendors offering aggregator
services, are also likely to offer licenced
software to direct participants

24. 24
The Published PSR view
“Indirect Access to payment systems – Technical Access
37. We support the development of Technical Access solutions. The industry is best
placed to design and develop Technical Access solutions that meet the needs of PSPs
and end-users. We anticipate that Technical Access solutions will be developed as
commercial propositions funded by those that use the service.
38. Industry is already making progress and we will continue to engage with participants,
with a keen interest in these developments. We see no reason for us to take a more
prescriptive approach to the development of Technical Access solutions at this
time. We note that the development of Technical Access solutions may require Operators
to be responsive to requests for amendments to
their rules, where appropriate and in the interests of service-users.”
Taken from PSR PS 15/1 – A new regulatory framework for payment systems in the UK:
final statement

25. 25
Access Programme Scope
Central
Infrastructure
PSP
PSP
PSP
Aggregator
Aggregator
Member
Member
Member
Faster Payments Scheme Ltd
• Programme Management
• Economic Modelling
• Business Reconfiguration
• Operational Changes
• Market Development
• Marketing and Communications
• PSP On-boarding/Certification Preparation
• Vendor Technical Accreditation
Bank of England
PSR
HM Treasury
Payments Council
• External Stakeholder Management
= Access Programme Workstream
PSP participation is confidential:
- PSP names and are not revealed or discussed with the Board, Access Steering Committee or individual Members
- PSP applications are decided on by the CEO and independent directors only (the Board has no role)
• Individual PSP Implementation

26. 26
Scope Choices for PSPs and Aggregators
Payment Service Provider (Bank/Non-Bank)
Central Infrastructure
Core Payment Initiation
channels
Payment Mandate
Management
Diarised Payment
Controller
Payment Status DB
(Master)
Fraud Detection Exceptions/Repair Core Accounting
Optional
Agency Banking
interface
Corporate Banking
interface
Scheme
Settlement
Sponsor Settlement
Automated Reports
Download
Soft Failure Retry
Mechanism
Payment Message
Translation
Reconciliations USM MonitoringAML Sanctions
Checking
Liquidity ControlsRecipient Status
Controls
Payment Service Provider or FPS Gateway /Aggregator
Optional
Host Message based
communication controller
Payment Status DB/Log
Payment Deduplication, Repeat
handling , Reconciliation
USM Handler
Acknowledgement and
Deduplication
Incoming Payment processing
Host Timeouts, Repeat Payment handling,
Return Payments, SRP, Reversals
Soft Failure Retry
Mechanism
Outgoing Payment processing
Timeout and Repeat Payment
handling
HSM Security InterfaceISO 8583 Message
Parser
CI communications handler
Core
Host System Stand-
In
Host bulking/de-
bulking interface
Agency /FIM/DCA
Authorization
Authorizations,
adjustments, reversals
Host timeouts
Optional
FPS Gateway /Aggregator
ISO8583 / ISO20022 / MT103/ Other
ISO8583
1
PPG Status
Handler
= in scope of mandatory Functional & Non-Functional
Testing and Accreditation
= contains functionality that may impact the CI interface, therefore may be in scope
of mandatory Functional& Non-Functional Testing and Accreditation

27. 27
Programme Timeline
Confidential - Faster Payments Scheme Limited
Economic
Modelling
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2105 2016
Market Development
Assurance and Risk Tiering
New Settlement Models
BoE implement Pre-funding
Next Gen Settlement in Place
Sub-Caps in Place
Accreditation Preparation Accreditation
MarketInitiation
Business
Reconfiguration
Accreditation
andOn-boarding
Settling Connected On-boarding

28. 28
Programme Timeline – PSP Accession Waves
FPS Market initiation,
Business reconfiguration
and On-Boarding Capability
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2105
Wave 1
BoE implement Pre-funding
Next Gen Settlement in Place
Sub-Caps in Place
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2016 2017
Wave 2
Wave 3
Prospective Challenger Bank &
non-settling -connected Participants
based on PayPal model
Non-settling connected participants
Non-Bank settling-connected PSPs

29. 29
PSP Participation Programme (Direct Participants* – Settling and Non-Settling)
Initial Contact NDA
Planning
Meeting(s)
Signed Letter of
Intent
Participation
Agreement
Briefing
Document
FPSL
Website
PSP
Documents
Central
Infrastructure
Central
Infrastructure
• Functional component
diagram
• Customer proposition
• Certification and
assurance description
• Functional component
descriptions
• PSP pro forma model and
slides
• Functional spec docs
• EIS docs
• Assurance requirements
• Assurance questionnaire
• Certification requirements
• Certification
• Live proving
• Live running
• Referrals
• Ad hoc
• Marketing
• Pro-active
contact
INED/CEO
Decision
* The PSP Participation Programme is set up for PSPs intending to become direct participants using their own IT/gateway or through an aggregator, whether self-settling or
settling through a sponsor. Traditional indirect participants settling through a sponsor bank do not need an agreement with FPSL and are not included in the PSP Participation
Programme
PARTICIPATION
PROGRAMME
STEPS
SUPPORT
PROVIDED TO THE
PSP BY FPSL
AFTER EACH STEP

30. 30
Key Considerations for PSPs
Commercial
• Real-time, 24/7 proposition v same day (sponsor bank)
• Business case/template model
Operating Model and Governance
• Choice of the three options – 1. aggregator access; 2. direct participant; 3. sponsor bank
• Requirements definition for chosen option to drive vendor choice
• Settlement (and settlement sponsor)
• Settlement Finality Directive designation
• Membership definitions and Scheme governance
• AML, Sanctions
Implementation
• Timing
• Assurance
• Accreditation and certification
• Sort codes