BACS Moves to Internet-based Payments Infrastructure

April 30, 2004

BACS has been successfully processing Direct Debit and Direct Credit payments in the UK for 36 years. In that time volumes have risen to huge proportions, and over four billion transactions were processed last year. Nearly 80% of households make at least one monthly Direct Debit payment, and 90% of company payroll transactions are processed using BACS’ Direct Credit system. So there’s no mistaking the significance of BACS payments both to the business world and the population at large.

With a major responsibility to deliver on such large volumes, BACS, which is run by 11 major UK banks, has looked at new technology to streamline its system, find ways to make them as secure as possible, meet the requirements of the future and satisfy regulatory pressures on competitive practices.

The company recently began a major technology renewal programme. Supported by the member banks, the aim of the programme was to overhaul the ailing current system and begin to plot out the best way to maintain the strong reputation of BACS payments (the company prides itself on never having lost a payment). The company also aimed to see a more cost-efficient processing system implemented. A report by the Office of Fair Trading published in 2003 supported this move and also recommended splitting BACS into two completely separate entities. BACS now has a payments processing arm that manages the schemes on behalf of the banks; this is BACS Payments Schemes Limited. The infrastructure behind it, including the technology and development centres have now become a completely new entity that will work in a competitive market place, as theoretically any clearing house can now enter the UK market if it so wishes. Realistically this is unlikely in the near future, but the whole European payments industry may undergo some radical changes in the medium term. The most significant result so far is the development and implementation of a new Internet-based payments channel called BACSTEL-IP.

Currently, BACS users rely on a dial-up modem to send and receive payments and a large amount of paper is used in making reports on unpaid items, or rejections through incorrect sort code and account details. The Direct Debit has is a relatively complex set of rules that govern the system from end-to-end and necessitate significant manual labour. BACSTEL-IP has been designed to provide a single Internet-based channel that will ease much of this burden and significantly speed up the process. Reports and messages will also be automated and users will be able to retrieve their data online.

Any business that currently use BACS services will need to consider upgrading their current software to a BACSTEL-IP compliant software package as soon as possible. BACS will be switching off the current BACSTEL service for good at the end of 2005.

To ensure the quality of options on the market, and ensure full testing and compliance with BACS’ strict criteria, there are only a small number of BACS-approved suppliers able to provide IP solutions. Inevitably, there will be a rush to upgrade towards the end of next year, and given the lead time between ordering and installation, all businesses are strongly advised by BACS and the banking industry to get ahead of the game and migrate across as early as possible. Upgrading early means that existing users will be able to begin benefiting from the new service as soon as installation is complete. The overall speed, efficiency and automation will save your business time and money. The IP system uses Public Key Infrastructure (PKI) technology that ensures the highest possible levels of security for transmissions. All of the BACS, approved software solutions include bank sort code and account validation checks that will greatly improve the quality of data users receive, and in turn will reduce the number of error reports, rejections and unpaid items. The user will additionally be able to update user details in real time, which was not the case before, and of significant importance is the simpler, more navigable interface that will enable monitoring of the status of a payment file at any time. Existing users will also notice that key reports are available on the new system in four hours, rather than the next day as is the case with the existing system.

I work for Access Europe, which is one of the approved BACS suppliers currently in the process of migrating their customer base to the new system and helping new customers deal with the changes and implement the correct system for their requirements. One of the key challenges we and our rivals face is getting across the full benefits of BACSTEL-IP along with the advantages of migrating, and the importance of planning a migration schedule to users who see the BACS cut-off point as a long time ahead.

This issue cuts across all sectors and industries and has seen the entire industry working towards achieving as seamless a migration for BACS users as is possible. Now is the time to start planning and make sure your business is fully equipped to meet the deadline of December 2005.

Patrick Nobbs is Head of Marketing for Access Europe, a key BACS-approved software supplier: