The Faster Payments Scheme Limited (FPSL) has announced changes to the Faster Payments service, including a ‘pre-funding’ settlement system, which guarantees settlement between all payment participants, eliminating any shared risk. Pre-funding, which has been in place since Wednesday 23 September 2015, removes the implicit obligation for smaller participants to underwrite a share of the larger participants' transactions, which was part of the previous model.

The new pre-funding systems means that the participant payment service providers are required to place a cash deposit to cover their net transactions in a segregated, interest-bearing account (called a Reserves Collateralisation Account/RCA) with the Bank of England. This is as well as its normal reserves/settlement account. According to Faster Payments, the deposit will only be used to settle the obligations of participants if they get into financial difficulties.

Eleven participants currently connect to the Faster Payments service, as well as 400 payment service providers that access indirectly through sponsor banks. The new service will enable more banks and third parties to gain direct access to Faster Payments, because the shared credit and settlement risks are no longer a potential barrier.

Craig Tillotson, chief executive of Faster Payments, said in a press statement: “Our introduction of a simpler settlement system is another big step forward in maintaining a stable financial system and supporting greater competition in banking.”