In this third round up of retail payments in 2023, for the 12 months to the end of February 2023, we continue to see double digit growth in the volume and value of Faster payments and double digit decline in paper clearing. The growth in volume and value for the UK’s bulk clearing scheme and volume for the UK’s real time gross settlement system are unchanged with the growth in the value processed for the latter increasing by 1%.
Note: All data is publicly sourced and is the latest available: Pay.UK February 2023.
Source: Pay.UK
Faster Payments
In the 12 months to the end of February 2023 we see that:
- Single Immediate Payment volumes have increased by 17% (12 months to January 17%)
- Total Faster Payment volumes have increased by 14% (12 months to January 15%)
- Single Immediate Payment values have increased by 29% (12 months to January 28%)
- Total Faster Payment values have increased by 25% (12 months to January 25%).
The meteoric rise in Faster Payments volumes continues to be bolstered by a switch from analogue to digital payments and the growing importance of Open Banking initiated Account to Account (A2A) payments.
The widespread use of faster payments is a digital payment habit that will be here to stay, reinforced as a result of the pandemic but with volumes and values continuing to increase month on month.
Although the trajectory in the increase in the volume of payments has flattened a little further, the overall increase year on year is still significant and looks set to continue for some while to come. Inflationary pressures could be having an impact on the value of payments processed with the growth in the value of Single Immediate Payments increasing by 1% month on month.
The future is certainly bright for Faster Payments – continued growth from Open Banking A2A payments and payments initiated by overlay services such as Request to Pay and Variable Recurring payments is certainly on the agenda. The growth is also likely to be bolstered through the introduction of new Faster Payment types (or flavours) as part of version 1.0 of the planned New Payments Architecture and, perhaps, through a future planned migration of Bacs Direct Credit payments into the NPA.
Bacs Direct Debit and Direct Credit
In the 12 months to the end of February 2023 we see that:
- Bacs Direct Credit volumes have increased by 4% (12 months to January increased by 4%)
- Bacs Direct Debit volumes have increased by 2% (12 months to January increased by 3%)
- Total Bacs volumes have increased by 3% (12 months to January increased by 3%)
- Bacs Direct Credit values have increased by 6% (12 months to January increased by 6%)
- Bacs Direct Debit values have increased by 9% (12 months to January increased by 9%)
- Total Bacs values have increased by 7% (12 months to January increased by 6%).
Notwithstanding the continued double digit growth in Faster Payments we still see Bacs Direct Credit growth of 4% – again just under 2Billion ‘push’ payments processed via the Bacs schemes over the last twelve months.
In the context of the first iteration of the planned New Payments Architecture platform the future of the Bacs Direct Credit scheme is uncertain although, it seems, the scheme will be processing in excess of 2Billion transactions per annum before it finally ‘bows out’ after over half a century of faithful service.
Direct Debits delivered 2% growth for the 12 months to the end of February 2023, processing over 4.7Billion ‘pull’ payments. The value of Direct Debits processed again increased by 9% over the same period reflecting the increasing costs of the goods and services that we consume.
In addition to the uncertain future faced by Direct Debits due to the planned New Payments Architecture the UK’s pre-eminent ‘pull’ payment scheme faces future challenge from Open Banking overlay services such as Request to Pay and Variable Recurring Payments.
However, with over 6.7Billion Bacs payments processed in the past 12 months it remains a major player processing 62% of all payments.
Cheques
In the 12 months to the end of February 2023 we see that:
- Cheque volumes have decreased by 14% (12 months to January decreased by 14%).
- Cheque values have decreased by 8% (12 months to January decreased by 8%).
Whilst Faster Payments is experiencing double digit value growth the paper cheque continues to suffer double digit decline – over the last twelve months the volume of cheques processed has decreased by 14%.
Cheque volumes total just over 1% of the total volumes processed by Pay.UK’s schemes (Bacs and Faster Payments) and continued decline in this share is expected as actual volumes decrease and growth continues elsewhere, particularly with Faster Payments.
CHAPS
In the 12 months to the end of February 2023 we see that:
- CHAPS volumes have increased by 5% (12 months to January increased by 6%)
This was made up of a 5% increase in retail / commercial based payments and a 5% increase in financial institution payments, compared to 6% increase and 6% increase respectively for the 12 months to January.
- CHAPS values have increased by 14% (12 months to January increased by 15%).
As the Faster Payments (FPS) participants raise their payment limits to or towards the FPS scheme limit of £1Million we will probably see a gradual reduction in CHAPS volumes although, given the value of payments initiated by financial institutions, any migration of retail / commercial payments from CHAPS to Faster Payments will not make a significant difference in the value processed.
Conclusion
After over 50 years of faithful service and processing almost 6.7Billion transactions per annum (and growing) it’s clear that Bacs, the UK’s bulk ‘push’ / ‘pull’ payments scheme, continues to meet a clear end user need. The next few years are, however, crucial for the future of Bacs and its schemes as the opportunity (and threat) of the planned New Payments Architecture begins to loom on the horizon.
After 14 years, Faster Payments continues to experience double digit annual growth as the boost from digital habits formed during the pandemic remains in force. The New Payments Architecture will bring new types (or ‘flavours’) of the current single form instant payment which will undoubtably lead to continued volume increases – this, coupled with the increase in Open Banking initiated payments, overlay services such as Request to Pay and Variable Recurring Payments suggests a very healthy future for the ‘granddaddy’ of real time payment schemes.
From the volume and value data it is clear that CHAPS quietly gets on with its function in the background of keeping the markets functioning and making house moves happen – but, quite rightly, remains a mystery to most of the UK population.
With annual volumes of cheques processed being close to the single largest Bacs processing day the decline in paper based transactions continues. The agreed measure for the eventual end of the cheque was ‘for as long as they are required’ – at just 131Million cheques per annum the inevitable decision must be on the horizon!