UK and pan-European moves to speed up clearing operations should enable IFAs to offer more real-time business in future, says one of those involved in building the IT infrastructure here and abroad.
Jerry Norton, director of strategy at LogicaCMG Global Financial Services, says the UK’s planned Faster Payments backbone will arrive sooner than the EU’s Single Euro Payments Area (SEPA), but both will determine massive changes in customer service levels of ecommerce.
Faster Payments has come about because of competition and other regulatory authority concerns about the UK banking system reducing levels of competition and service, particularly at the retail end of the market. It is essentially about reducing the clearing cycles in the area of UK payments business, with the industry given until November 2007 to implement the relevant infrastructure changes required. This will be focused on SIP, the Single Immediate Payment objective affecting credit, debit and standing orders.
As a result, in future such services will be completed in real-time “24/7”. This will predominantly impact online and phone-based services. A cap will be place on the size of such real-time payments – between £10,000-£12,000 – to reduce the chances of fraudulent activity on a big scale, Norton says.
“It’s clearly going to have a very big effect in the IFA marketplace,” he adds.
“This enables rapid deployment of on-off payments and radically changes bits of IFA back-end administration.”
Changes yet to be fully seen from the perspective of end customers include whether UK banks will extend the 24/7 capability of Faster Payments beyond basic services such as current accounts, as interpretation of the regulations does not make clear they must do so.
“It’s not clear to me they will offer 24/7 credit on all types of accounts or banking product types,” Norton says.
Another point is it is not clear whether companies receiving money will accept it 24/7.
That said, Norton still believes faster clearing services will transform big swathes of the UK economy. He categorises the changes as being the equivalent of bringing Delivery Versus Payment into the retail banking area. DVP objectives were developed by the G10 in the wake of 1987 stock market crashes as a way to improve the handling of systemic risk, especially credit and liquidity risks in security settlement systems.
For services such as protection products requiring links between payments and medical documents, the real-time availability should mean even more policies can be bundled up and sold on the spot, with the provider certain it will obtain the relevant credit on the day, if not within the hour.
Norton also ties Faster Payments to MiFID regulations, suggesting it will impact in the area of retail broking.
Part of the challenge is to get distributors of financial services aware of these possible links, he adds. Also, IFAs need to start thinking about how Faster Payments will impact links to their own or their clients’ banks. For example, there is a question on just how banks will advise IFAs their clients’ monies have been credited in real-time, given some may want to leverage the business advantages of promising higher levels of customer service in future.
SEPA changes the picture still further. Although a euro area issue, all UK banks are expected to become SEPA-compliant as matter of course, Norton says. It will likely rely on something called Prieuro as a sort of equivalent of Faster Payments to ensure speed of payment in the pan-European context.
While SEPA, which comes into effect by January 2008, may not provide a huge speed advantage in terms of UK-based IFAs and their clients, its impact is more likely to be felt in terms of sheer simplicity against the current hodge-podge of cross-border transaction solutions, Norton says. For those involved in retirement planning with clients thinking of retiring abroad this simplification may be of great benefit.
VOCA, the organisation responsible for the infrastructure supporting the majority of current bank-based payments in the UK, and the BACS system, as used to pay salaries, etc, will remain, Norton notes.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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