Processing Bacs and FPS payments as an indirect participant involves complex and strictly codified operations.
Manually managing these workflows is not realistic. However, building the systems that automate them can be a daunting project. In this article, we break down the tech stack required to process Bacs and FPS payments as an indirect participant, and how solutions like Numeral help.
To explore the topic further, we already wrote about the operations involved in projects as a Bacs and FPS indirect participant, and what to consider when a company aspires to become one.
Core banking systems are the core technological platforms for many financial institutions. Gartner’s definition of a Core Banking System (or CBS) is a back-end system that processes daily banking transactions and posts updates to accounts and other financial records. Core banking systems typically include deposit, loan and credit processing capabilities, with interfaces to general ledger systems and reporting tools.
In the scope of Bacs and FPS payments, a core banking system has several key roles.
First, it manages customer accounts, which includes:
Operating the logical “split” of the safeguarding account into customer accounts
Assigning account numbers to accounts
Operating ledger tasks such as calculating balance for the customer accounts and assigning transactions to customer accounts
Generating account statements
It also performs part of the payment processing. For both incoming and outgoing payments, the CBS will check that corresponding accounts have sufficient funds, exist, and are not blocked.
For incoming payments, the CBS will identify the customer account linked to the payment using the account number in the Bacs or FPS payment messages and assign the funds to the correct customer account when these funds are transferred from the settlement account to the safeguarding account.
For outgoing payments, the CBS will first run regulatory checks:
It will perform Confirmation of Payee check
It will check the payment destination against a list of sanctioned countries or entities, using solutions like Thomson Reuters or Comply advantage
It will run anti-money laundering (AML), countering the financing of terrorism (CFT) and anti-bribery checks. Note that these checks can be performed by third-party solutions connected to the CBS, such as Hawk.ai Salv Feedzai, SaS and Marble
It will then withdraw the funds from the correct customer account in the ledger when funds are transferred from the safeguarding account to the settlement account.
Also, sponsor banks can offer off-the-shelf solutions to indirect participants that do not have the teams and tools to handle these regulatory requirements in-house.
Finally, these compliance processes can be audited by the sponsor bank, which will ensure that transactions going through its systems are compliant.
CBSs can have native payment solutions and native bank integrations with certain sponsor banks. Still, some Bacs and FPS indirect participants might want to work with unsupported sponsor banks or a CBS that doesn’t have a native payment solution.
Bank connectivity and payment automation solutions like Numeral help Bacs and FPS indirect participants in three ways.
In order to send and receive Bacs and FPS payments, an indirect participant needs to be connected to Bacs and FPS payment systems. It does it through its sponsor bank, through which it will exchange Bacs and FPS messages with the Bacs and FPS payment systems.
Connecting to the sponsor bank means establishing a secure and stable connection with the sponsor bank interfaces (whether SFTP servers, APIs, or message brokers) and packaging Bacs and FPS messages into a format accepted by the bank (whether XML files or specific API calls).
For this connection to be robust, it must authenticate with the sponsor bank’s server or APIs, have a retry logic when technical exchanges fail, and account for banks’ and payment systems’ cut-off time.
Note that often, connecting to the sponsor bank will actually require different integrations for Bacs, FPS and safeguarding and settlement accounts management.
On the Bacs and FPS indirect participants’ side, Numeral connects with CBS via API, and also provides webhooks that Bacs and FPS indirect participants can subscribe to in order to receive notifications of any event happening in the platform.
That’s the core of a solution like Numeral. While a CBS can perform a part of the payment processing, Bacs and FPS indirect participants need a solution to create and read the Bacs and FPS messages they will exchange with the payment systems.
In this section, we describe the technical workflows required to do so and that solutions like Numeral enable Bacs and FPS indirect participants to manage.
1. Managing outgoing payments
When a payment instruction is given, here are the steps Numeral performs to effectively send the Bacs and FPS payment in compliance with the payment systems rules and regulations:
Receive payment instructions, whether initially generated from an end-user interface or automatically from a third-party solution
Turn the payment instructions into a financial institution to financial institution Bacs or FPS messages that the sponsor bank will forward to the payment systems
Package the Bacs or FPS messages into API calls or files supported by the sponsor bank
Send API calls or files to the sponsor bank via the sponsor bank connectivity systems (API, SFTP server, message broker...)
2. Managing incoming payments
As a Bacs and FPS indirect participant, you must be able to process incoming payments, which are payments sent to your or your customers’ accounts from other financial institutions. Here are the steps Numeral performs to do so:
Download the payment files or receive the API calls from the sponsor bank via the sponsor bank connectivity system
Parse the API calls or payment files to identify Bacs of FPS messages and related payments
Turn the Bacs or FPS messages into instructions understood by the CBS
Send the instructions to the CBS
3. Managing payment errors and exceptions
Payment errors and exceptions might happen for various reasons. These errors are managed via specific Bacs and FPS messages that indirect participants must be able to send and receive.
Solutions like Numeral help Bacs and FPS indirect participants manage these exceptions by both sending and receiving the related messages.
a. Sending error and exception messages
When Numeral receives exceptions from the CBS, it turns them into the relevant Bacs or FPS messages. These messages are then packaged into API calls or files supported by the sponsor bank and sent to the sponsor bank.
When necessary, for instance in the case of a return, Numeral reconciles the settlement and safeguarding accounts transactions with the transfers related to the errors and exceptions.
b. Receiving and processing error and exception messages
When a Bacs and FPS indirect participant receives error and exception messages from payment systems through its sponsor bank, Numeral downloads the files containing these messages and parses them to identify the said messages. Numeral then displays the messages in its dashboard to enable the Bacs and FPS indirect participant’s compliance and banking teams to review and accept, deny or challenge them.
Numeral also turns error and exception messages into instructions understood by the CBS, before sending them to the CBS.
When necessary, similarly to when sending said messages, Numeral reconciles the settlement and safeguarding accounts accordingly.
4. Transactions monitoring and error resolution
Other errors than the ones linked to error and exception messages can happen, and while Numeral usually automates most of the workflows described above, human intervention can still be required.
a. High-level monitoring and reporting
Bacs and FPS indirect participants need a view of their payment operations to make sure their payments are processed correctly, in a timely manner and identify when repeated errors happen to optimize their operations.
b. Specific payment issues investigation
Bacs and FPS indirect participants need to identify payment issues when they happen and identify their root causes. To do so, they need access to all the linked information to such payments, including the linked creditor and debtor bank accounts, files related to the payment, or transfers between the settlement and safeguarding account linked to the payment.
c. Manual tasks to solve the issues
When the Bacs and FPS indirect participant’s team has identified the root cause of a payment issue, they might need to perform manual tasks to resolve it, such as manually sending or approving a payment or performing a manual reconciliation.
That’s why Numeral comes with a dashboard allowing finance and operations teams to have the required visibility and manually resolve the issues when necessary.
Operating as a Bacs and FPS indirect participant also implies the management of a safeguarding and a settlement account for regulatory and operational constraints.
Bacs and FPS indirect participants connect to these accounts through their bank’s corporate cash management connectivity solutions.
To perform the necessary transfers between their settlement and safeguarding account, Numeral creates and sends corporate to financial institution Bacs or FPS messages to the Bacs and FPS indirect participant’s sponsor bank and reconciles these payments with the corresponding transactions to ensure accurate tracking.
Bacs and FPS indirect participants can choose how often in the day they want to transfer funds between the two accounts depending on their needs while respecting the regulatory requirement to transfer customer funds received on their settlement account to their safeguarding account before the end of the business day.
Numeral helps Bacs and FPS indirect participants connect with their sponsor bank and automate the workflows involved in Bacs and FPS payments processing.
Having already integrated with leading sponsor banks and supported financial institutions in their indirect participation project, Numeral’s platform accelerates the technical side of such projects, virtually enabling fintech companies to be technically able to process Bacs and FPS payments by simply connecting to our API.
As highlighted in our guide to becoming a Bacs and FPS participant, the chosen sponsor bank will become a key partner of the Bacs and FPS indirect participants. That’s why we are building a growing number of relationships with the UK’s leading sponsor banks. We believe that the success of Bacs and FPS indirect participation relies on much more than technology. We want to ensure we offer our customers and prospects the correct guidance.
If you are a financial institution exploring a Bacs and FPS indirect participation or a bank looking at expanding its Bacs and FPS indirect participation offer, feel free to contact us.