Banks are re-using technology to help them take advantage of a
joint Office of Fair Trading
(OFT) and banking industry initiative to reduce payment
processing times to one day.
The introduction of the
Faster Payments System (FPS), which goes live today, is the
latest IT challenge facing banks.
FPS offers people the ability to make internet banking and
telephone transfers between banks in near real-time. Standing
orders can be processed on the same day, rather than the usual
three days.
FPS was the result of an agreement in December 2005 between the
Office of Fair Trading and 13 UK banks. Payment infrastructure
provider
VocaLink is providing the network infrastructure to allow
faster payments.
Before the introduction of FPS, banks could only make payments
through Bacs, which takes three days, or through the same-day Chaps
system, which is used for high-value payments. FPS offers same day
payments for lower-value transactions.
Banks rely heavily on data that sits on thousands of legacy
systems that are as much as 40 years old. Ripping and replacing
these systems would be expensive and time consuming. Instead, banks
are introducing service
orientated architecture to harness their legacy systems for
faster payments.
Banks offer FPS to customers as a service. To do this, they must
link existing payment and database systems to Vocalink's faster
payment network.
HSBC is among the banks planning to offering FPS from 27
May.
"It is a very significant technology challenge that has to
balance the need for speed of the service and the need to ensure
continuity of service and customer security," said an HSBC
spokesman.
HSBC has harnessed its existing payments infrastructure but has
enhanced it with new software. It has built an application to send
and receive messages between its Faster Payments service and its
central infrastructure, which is made up largely of legacy
systems.
The bank has also changed the interfaces that customers use to
connect to the bank to ensure that they can use Faster Payments
without having to make any significant changes themselves. Payments
made using FPS are non-revocable, so bank systems must get it right
and help prevent customers getting it wrong.
"Apart from the gateway, all our development has been a refresh
of existing technology," HSBC said.
Banks expect more attempted fraud following the introduction of
FPS, but Barclays has also made changes to its security system to
prevent fraud.
The Royal Bank of Scotland (RBS) last month announced that it
would strengthen security in readiness for FPS. It is using
technology from Experian Payments to check payees and recipients
and to check that payments follow typical patterns for the business
customer.
Jane Barber, head of product development banking relationship
services at RBS, said that because transaction speeds are going to
increase, the bank had to upgrade its systems to reduce errors and
the costs associated with them.
Barclays has added two applications to its existing Global
Payments Infrastructure. It has developed an application that
communicates with VocaLink's FPS infrastructure. It has also
created Faster Payments Service Hub to communicate with all legacy
back-office and middleware systems. The middleware manages the
routing of outbound payments and checks and responds to inbound
payments.
"Other than the development and implementation of a new FPS Hub
and Gateway there are no other new components added to the Barclays
Global Payments Infrastructure," said Barclays. "That said there
has been numerous legacy system configuration and interface changes
made."
Faster payments was orginally scheduled for early 2008. The fact
that is overdue by six months which is a reflection of the
challenge in upgrading technology, said Chris Skinner, chief
executive at financial services think-tank Balatro.
"It is primarily a technology challenge, in which UK banks have
invested about £300m," he said.