What is a reason for implementing prefunding requirements in Faster Payments?

Implementing prefunding requirements in Faster Payments primarily serves to avoid the buildup of credit risk. Prefunding involves the practice where a party, often the sender, ensures that funds are available in advance before initiating a transaction. This mechanism is critical in faster payment systems because it guarantees that the funds are already secured and prevents situations where a party may default or fail to complete the transaction after it has been initiated.

This method is especially pertinent in real-time payment environments where transactions are processed almost instantaneously. By requiring funds to be prefunded, the risk associated with processing payments without guaranteed backing is mitigated, protecting both the payment system and involved parties from potential losses. Hence, avoiding the buildup of credit risk is a fundamental reason for adopting prefunding practices in the realm of Faster Payments.