Costs and Benefits of Building Faster Payment Systems: The U.K. Experience and Implications for the United States

Federal Reserve Bank of Boston Research Paper Series Current Policy Perspectives No. 14-5

47 Pages Posted: 14 Feb 2015

See all articles by Claire Greene

Claire Greene

Federal Reserve Banks - Federal Reserve Bank of Boston

Marc Rysman

Boston University - Department of Economics

Scott D. Schuh

Federal Reserve Bank of Boston - Research Department

Oz Shy

Independent ; Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: October 10, 2014

Abstract

A number of countries have implemented faster payment services that allow consumers and businesses to rapidly transfer money between bank accounts. These services compete with slower, existing payment services. In 2008, the United Kingdom implemented its Faster Payments Service (FPS) at a cost of less than ₤200 million (.014 percent of U.K. GDP, or $307 million) spread over seven years, plus investment costs borne by each participating bank to connect to the FPS. This paper examines the economic cost-benefit analysis underlying the U.K. FPS investment decision and describes the subsequent diffusion and use of FPS through 2013. The paper also assesses the effects that FPS likely had on the rest of the U.K. payment system and highlights key unanswered questions for future research. Based on this U.K. experience, the paper describes implications for the U.S. payment system, which the Federal Reserve has proposed to make faster in recent policy announcements.

Keywords: fast payments systems, cost-benefit analysis, account-to-account (A2A) transfers, person-to-person (P2P) payments

JEL Classification: G210

Suggested Citation

Greene, Claire and Rysman, Marc and Schuh, Scott and Shy, Oz, Costs and Benefits of Building Faster Payment Systems: The U.K. Experience and Implications for the United States (October 10, 2014). Federal Reserve Bank of Boston Research Paper Series Current Policy Perspectives No. 14-5. Available at SSRN: https://ssrn.com/abstract=2564144 or http://dx.doi.org/10.2139/ssrn.2564144

Claire Greene

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Marc Rysman

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-3086 (Phone)
617-353-4449 (Fax)

Scott Schuh (Contact Author)

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Ave.
Boston, MA 02210
United States
617-973-3941 (Phone)
617-619-7541 (Fax)

Oz Shy

Independent ( email )

No Address Available

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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