BACS

BACS (originally an acronym for Bankers' Automated Clearing Services) is a United Kingdom scheme for the electronic processing of financial transactions. Direct Debits and BACS Direct Credits are made using the BACS system. BACS payments take three working days to clear: they are entered into the system on the first day, processed on the second day, and cleared on the third day.

BACS was invented by Dennis Gladwell and was started in 1968 as the Inter-Bank Computer Bureau, set up to develop electronic transfer of funds between banks and avoid the need for paper documents as part of the money transfer process. The company operating the service adopted the name "Bankers Automated Clearing Services Limited" in 1971. A telephone service, BACSTEL, was introduced in 1983, reducing the need for magnetic tapes. More banks and building societies joined in 1985, and the company shortened its name to "BACS Limited".

On 1 December 2003, BACS Payment Schemes Limited (BPSL) was split from BACS Limited: BPSL is a "not for profit" body with members from the banking industry which promotes the use of automated payment schemes and governs the rules of the BACS scheme; BACS Limited owns the infrastructure to run the BACS scheme. BACS Limited was permitted to continue to use the BACS name for one year, and became Voca Limited on 12 October 2004. Voca Limited has since been merged with the UK national switch provider LINK Interchange Network Limited, the new company being called VocaLink. It is based at Rickmansworth in Hertfordshire.

Since 2003, BACS has been moving from the telephone dial-up BACSTEL service to an internet-based service, BACSTEL-IP, which is claimed to be quicker and more secure. All BACS users, including businesses that make payments to their suppliers or operate their staff payroll electronically, were required to move to BACSTEL-IP by the end of December 2005 or return to using cheques. When the BACSTEL-IP service was introduced all software used to make a connection to BACS required BACS approval. It is now only possible to make a connection with software from the list of BACS Approved Solution Suppliers (BASS).

The BACS system, and in particular the time taken for money to move between accounts, has been widely criticised by consumer groups as inefficient and archaic, especially as it is the system used for money transfers made by telephone or internet banking. This compares unfavourably with other developed countries, particularly in Scandinavia, where the "Elle" system ("Early Late / Late Early") allows money transferred before lunchtime to reach a payee's account on the same working day, or money transferred after lunchtime to reach the payee's account the following morning.

In March 2005, the Office of Fair Trading proposed that such a system be introduced in the UK. In December of that year, plans were announced for its introduction in the period from the end of 2006 to 2008, with estimates of the time taken for such payments being between 15 minutes and 3 hours depending on the banks/building societies at each end of the transaction. Voca Link are providing this service in the UK.

On 27 May 2008 the new Faster Payments system went live. This new system has improved money transfer speeds between different banks in the UK enabling account holders with one bank to make virtually instant payments to those with another bank. The system is still in its early stages and currently has a membership comprising the following banks: Abbey, Alliance & Leicester, Barclays, Citigroup, Co-operative Bank, Danske Bank (Northern Bank), HBOS, HSBC, Lloyds TSB, Nationwide Building Society, National Australia Group (Clydesdale and Yorkshire Bank), Northern Rock and the Royal Bank of Scotland Group (including Natwest and Ulster Bank). Between them, they represent 95% of the payments made in the UK. Those remaining banks and also building societies will be making decisions on how, when and if to join the scheme between 2008 and 2009.

ee also

*APACS
*CHAPS
*EFTPOS
*Faster Payments Service
*SWIFT
*Payments Council

External links

* [http://www.bacs.co.uk/ BACS website]
* [http://www.vocalink.com/ VocaLink website]
* [http://www.apacs.org.uk/ APACS - the UK Payments Association Information on Cheque Clearing]
* [http://telegraph.co.uk/money/main.jhtml?xml=/money/2005/03/16/cmtrans16.xml Criticism of BACS] in Daily Telegraph article
* [http://www.oft.gov.uk/news/press/2005/230-05 OFT welcomes details on faster clearance on electronic payments]
* [http://news.bbc.co.uk/1/hi/programmes/moneybox/4428147.stm BBC News - Clearing times]
* [http://news.bbc.co.uk/1/hi/business/6508791.stm BBC News - Banking hitch delays workers' pay (29 March 2007)]
* [http://www.bacs.co.uk/BACS/Software+Suppliers/Resources/Approved+software/ BACS Approved Solution Suppliers List]