A quick guide to the key UK payment rails
Liz Carroll, Senior Product Manager, Financial Marketplaces at Finastra
There are a range of payment rails available in the UK; some widely applicable while others work better for companies operating in certain circumstances.
But what is a payment rail? Payment rails refer to the underlying infrastructure and systems that facilitate the movement of money between parties. Each one differs in how it carries out the payment process. These differences might be speed, geographic location, usage cost or payment type.
While a decade ago 54% of all UK payments were made through cash, these days digital payments are far more common for both inbound and outbound payments. This allows companies to use the most effective and cost-efficient options available.
Bacs
Bacs is a trusted and well-known UK payment method, with almost 2 billion Direct Credit and 5 billion Direct Debit transactions handled in 2023. It’s a bulk transaction solution, allowing many transactions to be handled at one time, which lets you better manage your cashflow. One key advantage is that you can collect payments from your customers (with prior agreement).
Access: Companies must have a bank sponsorship. Typically has low bank fees per transaction.
Transaction types: Sending outbound payments (Direct Credit) and collection inbound payments (Direct Debit).
Speed: Three working days.
Typical usage: Bulk scheduled payments e.g. payroll, supplier payments, collection of repeating customer payments.
Faster Payments
Faster Payments is a useful tool for facilitating unexpected payments. It enables companies to quickly make single or bulk outbound payments.
Access: Accessible from banking services as well as via Direct Corporate Access. Typically higher bank transaction fees than Bacs.
Transaction types: Sending outbound payments.
Speed: Typically within 15 minutes.
Typical usage: Transactions that need to be issued quickly.
Cards
Perhaps the most well-known payment method, at least by payers. In 2023 Visa alone processed more than 200 billion global transactions.
Access: companies need to be sponsored by their bank or use one of the card service providers available in the UK that facilitate access to card payments.
Transaction types: Used for inbound payments and any related refunds.
Speed: Typically, transactions are authorised instantly and batched transactions are processed at the end of each business day. Clearing is completed overnight and settlement within one to three business days.
Typical usage: For collecting one off or first payments.
Open Banking
While technically not a payment rail, it deserves a mention. Open Banking is a way to submit a payment request into your banking service. The actual transaction is then made using an appropriate rail which gives access to international as well as domestic payments.It requires consent of the account holder, authorised using Secure Customer Authentication, which might not always be desirable.
The addition of Variable Recurring Payments (VRPs) to Open Banking opens an alternative way for your customers to pay. VRPs are a payment instruction that lets customers connect authorised payment providers to their bank account to make payments on their behalf.
Access: Some banks offer API access, while software providers offer flexible access with freedom to switch banks or operate a multi-bank solution.
Transaction types: Can be initiated by a company or payer to make a payment. VRPs facilitate hands off recurring payments.
Speed: Depends on payment rail, likely to be Faster Payments for UK payments.
Typical usage: Useful for small numbers of transactions or requesting your customers to initiate a payment to you. VRPs offer an alternative payment method to Direct Debits for some.
Request to Pay
Like Open Banking, Request to Pay (RtP) isn’t a payment rail in its own right. It’s a messaging overlay service that allows businesses to issue payment requests and communicate with bill payers via a secure channel. Whilst RtP gives flexibility to your customers in how and when they pay, it doesn’t have the simple reconciliation or ability to plan your cashflow that Direct Debit gives.
Access: Accessed via a secure repository accredited by Pay.UK. These can be operated by payment service, technology providers or the actual biller.
Transaction types: Requesting inbound payments.
Speed: Dependent on how quickly the payer responds to the payment request. The actual transaction depends on the payment rail used, likely to be Faster Payments for UK payments.
Typical usage: An alternative for payers who can’t or won’t pay by Direct Debit.
Which one is right for you? There is no simple answer, it depends on your needs.
There is good reason why some of these standard payment methods are widely used. However, newer payment methods offer their own unique benefits. It’s important to map out the use cases and needs most relevant to your business, weigh up the pros and cons of different methods, and work with trusted partners to implement the ones that best set you up for success.