Pay.UK has gone live with a new liquidity model for Faster Payments, allowing direct participants to propose their own Net Sender Caps based on expected payment flows.

Where Pay.UK approves a lower cap, firms can reduce the amount held in their Bank of England pre-funding accounts, freeing up liquidity and lowering the cost of participating in the system directly.

The change addresses a particular challenge for fintechs and non-bank payment service providers, which can otherwise be required to tie up more capital than their normal payment activity demands.

It also changes the way firms must think about liquidity risk. Holding a large fixed buffer provides protection against unexpected peaks, even if much of that money remains unused. Setting a lower, more tailored cap requires a participant to understand its payment flows closely and respond when demand changes.

Reaction has focused on both sides of the reform: lower financial barriers could bring more firms into Faster Payments, but access still depends on resilient infrastructure, accurate forecasting and continuous monitoring.

Why Faster Payments participants hold pre-funded cash

Directly Connected Settling Participants in Faster Payments must hold pre-funded liquidity at the Bank of England.

A Net Sender Cap limits how much a participant can owe other members of the system during a settlement cycle. The pre-funded balance supports that cap and protects other participants if a firm fails to meet its obligations.

Under the existing prescriptive model, firms follow a Minimum Net Sender Cap and Peak Contingency Value calculated to provide sufficient coverage during periods of higher activity.

Pay.UK said its analysis showed that participants frequently held more liquidity than they used, with the highest levels reached only occasionally.

That creates an opportunity cost. Money committed to a pre-funding account remains available for settlement but cannot be used elsewhere in the business.

The effect can be particularly pronounced for non-bank providers, for which the amount held against a Net Sender Cap may represent additional liquidity rather than money they would otherwise keep at the Bank of England.

Pay.UK has now added a flexible alternative to the prescribed model. Participants can submit quarterly plans proposing their own caps, supported by the operator’s existing monitoring, alerting and settlement controls.

Firms can continue using the current Minimum Net Sender Cap and Peak Contingency Value if they prefer, allowing them to adopt the new approach at their own pace.

Pay.UK said the change can be implemented without technical or system alterations.

Lower costs could widen direct access

Direct participation in Faster Payments has grown from 26 organisations in 2018 to 47, bringing more challenger banks and payment providers into a system once dominated by established banks.

Holding less surplus liquidity could make direct access more commercially viable for a wider range of firms.

Direct participation can give a payment provider more control over settlement and service delivery, while reducing its reliance on an intermediary or sponsoring bank. It also brings responsibility for liquidity, operational resilience, fraud prevention and compliance.

Mark Fieldhouse, chief revenue officer at payments technology company Form3, described the flexible model as a welcome reduction in the cost and complexity of accessing instant payments.

“By reducing pre-funding requirements, it should make it easier for more fintechs, particularly newer entrants, to participate in real-time payments, driving greater competition,” he said.

However, he warned that lower funding requirements do not reduce the technical and operational demands of processing payments continuously.

“Banks and fintechs will still need to have their own robust infrastructure in place that can manage payment processing, liquidity requirements and security protocols like anti-fraud measures in real time,” he said.

“The risk here is that new entrants will run before they can walk, without having the necessary infrastructure in place to handle real-time payments at scale.”

Flexibility shifts attention to forecasting

The new model does not remove pre-funding or allow participants to set caps without oversight. It gives firms the ability to propose a level that better reflects their own payment activity within a centrally governed framework.

The benefit depends on how accurately those firms can anticipate demand.

A cap set much higher than normal payment flows may leave the participant with much the same amount of idle liquidity as before. One set too low could require rapid action when volumes rise unexpectedly.

Pratiksha Pathak, senior vice-president and head of payments at RedCompass Labs, said the growth of round-the-clock payments was already forcing firms to manage liquidity more dynamically.

“Firms need enough liquidity available to avoid failed payments and protect customer trust, but too much idle cash ties up capital that could be working elsewhere,” she said.

Giving providers more control allows them to manage risk around their actual payment flows rather than static assumptions, she added.

“But flexibility only works if control keeps pace. Firms need robust forecasting, monitoring and internal controls to manage liquidity dynamically. Real-time payments have to be run as an operational discipline, not treated as a one-off infrastructure upgrade.”

That distinction is central to the change. Pay.UK is reducing the reliance on standardised buffers, but participants taking the flexible route will need the data, treasury processes and operational capacity to justify their proposed limits.

Real-time payments raise the operational bar

The move towards payments that operate 24 hours a day has made traditional liquidity practices less suitable.

Payment volumes can rise outside banking hours, including overnight, at weekends or during unexpected events. Firms therefore need visibility over their positions throughout the day rather than relying solely on forecasts built around conventional settlement windows.

For larger banks, much of that infrastructure may already be in place. Newer participants will need to ensure that the financial benefit of holding less pre-funded cash is not undermined by gaps in monitoring, contingency planning or fraud controls.Simon Eacott, head of payments at NatWest, said the approach would allow participants to set caps that reflect their own payment flows and risk profiles.

“For NatWest, this approach supports more efficient liquidity management while maintaining the resilience and reliability that customers expect from real-time payments,” he said.

Pay.UK chief operating officer David Morris said the change gave participants greater control over liquidity “without compromising the robust controls that underpin confidence in the system”.

The reform does not change the speed of Faster Payments or remove participants’ settlement obligations. It changes how the liquidity supporting those obligations can be calculated and managed.

Pay.UK expects the model to reduce unnecessary pre-funding and lower one of the financial barriers to direct participation. Industry respondents said firms adopting lower caps would still need accurate forecasting, continuous monitoring and resilient operational controls.

Participants can also continue using the existing prescribed liquidity model if they prefer.