Payments are at the core of any fintech company. Whether its core product is lending, investments or payments themselves, fintech companies must offer their customers complete and seamless payment options. In the UK, it means supporting Bacs and FPS payments.

There are different ways to access Bacs and FPS and send and receive Bacs and FPS payments on behalf of customers, depending on fintech companies’ activities, maturity and strategy.

We’ve covered these access models in the context of SEPA, but the models are similar in the UK for Bacs and FPS payment systems.

One of these access models is to become a Bacs and FPS indirect participant. This model, also called “agency banking”, unlocks many benefits for fintech companies but still represents a significant investment.

When should fintechs become Bacs and FPS participants

When sending and receiving Bacs and FPS payments through a bank or a PSP isn’t enough

Most companies access Bacs and FPS as “corporate customers” of their payment services provider (PSP). Being a corporate customer means that a company will rely on one or several PSPs, such as banks or BaaS providers, to hold their customer accounts and send and receive payments from and to those accounts.

When fintech companies enable their customers to deposit funds on an online account and send and receive payments from these accounts rely on a bank or a BaaS to do so, it means that the bank or BaaS will actually perform these operations. On behalf of the fintech, which itself does it on behalf of the end customers.

In the case of fintech companies working with banks, these companies will work with the corporate cash management department of the bank, and the bank will hold the accounts of the fintech.

When being a corporate customer falls short

We already explored why and when successful fintech companies leave their BaaS provider.

Growing fintech companies will also hit limitations as bank corporate customers.

First, only some companies can even consider becoming Bacs and FPS participants. Indeed, only regulated electronic money institutions, payment institutions, or credit Institutions (i.e., banks), referred to as “financial institutions” as a whole, can apply to participate in UK payment systems. For those regulated companies, the question arises when their volumes grow.

In the corporate customer model, companies are bound to use their bank’s sort code, in their bank’s name.

In addition, more payments mean more edge cases, potential errors, and scenarios to manage. As corporate customers, companies don’t have direct control over the mechanisms to handle these cases and have to rely on their banks. Banks can take time and charge significant fees to manage these exceptions or failed payments.

Finally, companies using the corporate customer model rely on one or more intermediaries to process their payments, meaning as many payment speed overhead, potential points of failure and business counterparts with their own compliance requirements and margins to preserve.