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UK consumers and businesses can now use Faster Payments to make retail purchases of up to £1m, which could mean significant savings in large transactions such as home purchases.
On Wednesday (February 9), Finextra broke the news that Pay.UK, the operator of Faster Payments, has “quietly” increased the transaction limit on the instant payment network from £250,000 to £1m.
Although no official announcement has been made by Pay.UK yet, Faster Payments’ website confirms the increased limit, and banks have started to announce adjustments to their transfer conditions.
When the Faster Payments service was launched in 2008, the initial transaction limit was £10,000. As the service has evolved and participants have gained a greater understanding of the risks involved, transaction limits have gradually been eased. In 2015, the maximum transaction value that could be made on Faster Payments was increased from £100,000 to £250,000.
A higher limit cap has been on the table for years now, although concerns over rising fraud levels may have contributed to this reluctance to change limits.
Pay.UK told VIXIO that the latest increase reflects corporate demand, and “helps to provide greater choice in the market for those organisations wishing to make higher-value payments”.
“When it became apparent that there was demand for a limit increase, plans were put in place to make that a reality,” Pay.UK said.
The Pay.UK board approved the transaction limit increase in April 2020, which was successfully tested both centrally and by participants in February 2021. It received the nod from the Bank of England before October last year. Once all this was complete, the increase could be implemented.
A new use case
By offering a low-cost alternative to CHAPS, a real-time gross settlement (RTGS) system, for urgent, high-value payments, the new cap has the potential to reshape the use of Faster Payments by businesses.
Consumers can also potentially benefit from this increase by easing the pain of one of the most stressful purchases we make: buying a home.
Currently, virtually all of the 750,000 plus house sales made in the UK each year are completed using CHAPS. This means buyers, who already face significant and unexpected costs when purchasing a home, must also fork out a £30 payment fee for using the RTGS.
With the average house price in the UK currently at £285,000, rising to an average £516,000 in the capital London, previous limits meant that Faster Payments was impractical as a method to complete a purchase.
Now solicitors, who typically manage the house completion process in the UK, can be encouraged to use Faster Payments to help their clients save money.
According to the Bank of England, roughly 90 percent of the 45m transactions that are currently processed via CHAPS have a transaction value of under £1m. These transactions can now go through the much cheaper Faster Payments system.
With average end user fees of between £25 and £30 for using CHAPS, VIXIO estimates this could mean fee savings of potentially more than £1bn by switching to Faster Payments. Most consumers are not charged for using Faster Payments, while businesses will pay significantly lower fees by comparison.
Higher limit, higher fraud?
Fraud is a high-profile problem for Faster Payments.
According to UK Finance, £355m was lost to authorised push payment (APP) scams in the first half of 2021, overtaking card fraud losses for the first time.
To prevent APP fraud, regulators introduced Confirmation of Payee (CoP), which alerts consumers in case the recipient's account name does not match the name of the intended beneficiary.
The first phase of implementation has proven to be a useful tool against APP fraud. CoP was noted to have helped reduce misdirected payments and prevent an even larger increase in APP fraud.
The Payments Systems Regulator is now moving full steam ahead to increase the adoption of the tool among financial institutions.
Although Pay.UK said “the increase is nothing to do with CoP”, it is possible that Pay.UK’s efforts to curtail APP fraud with CoP will have helped smooth the way for increasing the limit.
According to Finextra, Pay.UK plans to make a formal statement about the transaction limit increase “once it has confirmed that the participants offering the higher limit are successfully using it smoothly and efficiently”.
Transaction limits on both the eurozone’s SEPA instant payments scheme and The Clearing House’s RTP instant payment network are set at €100,000 and $100,000 respectively, while the anticipated FedNow is expected to kick off with a $0.5m cap.
