OFT makes its move on clearing system

An industry plan for improving clearing of online and telephone banking payments must be developed within the next six months the Office of Fair Trading has warned today.

The warning has been heeded, as banks and building societies have agreed to do just that, as well as look at the issue of clearing times for standing orders, the OFT says.

The goal is to put all clearing times for such transactions on a same-day or next-day footing, depending on what time of day a payment is initiated.

APACS, the Association for Payment and Clearing Services will report back to the OFT-chaired Payment Systems Task Force within the next half year, with an eye to implementing any necessary changes within two years after that.

Specific issues to be addressed include whether it is practical to route standing orders through the new system of faster payments, or, if not, whether the banking industry should eliminate so-called ‘float’ – the interest accrued when money has left the payee’s account, but not yet reached the recipient.

Any new system will also have to address the issue of banks remaining outside the new agreement - which may not be obligatory - as long as those remaining outside retain at least the current level of clearing service.

Those involved in the development process will also have to ensure the system is sufficiently flexible to deal with more changes if required.

Development of the system will take place under the auspices of the Payment Systems Task Force. Set up about a year ago under the chairmanship of the OFT, it brings together banks, building societies, consumer and business groups, the Treasury and Bank of England.

Involved in the development process will be the BPSL Innovation Working Group - one of the groups set up within the Task Force structure - which apart from the big four clearing banks includes includes APACS, BACS Payment Schemes Ltd, the British Bankers' Association, the British Retail Consortium, the Building Societies Association, CHAPS, the Clearing Company Ltd, the Naitonal Consumer Council, and Which?.

According to the Task Force’s report on its first year in action, other next steps include looking at issues relating to cheques, as well as LINK, the UK’s network of cash machines, the UK’s credit and debit payment cards networks, and the CHAPS clearing scheme.

In reaction to the OFT’s statement today, Lloyds TSB has announced it is in favour of the proposed changes, as it has already introduced a policy of paying interest on payments that currently take two days to reach recipients.

Voca, the technology company formerly known as BACS, which is responsible for developing the core clearing system technology used by UK banks says it welcomes the moves to implement changes to clearing rules.

Already involved in building a systems architecture for enabling faster clearing times, Voca says it should be possible to use this new platform for faster services.

"We are pleased that the banking industry is moving towards the implementation of a faster clearing cycle for payments within the UK and believe that our new technology provides the best platform for this service," Voca says in a statement.

"Over the course of 36 years of operation Voca (formerly BACS Limited) has processed over 50 billion transactions and never lost a payment."

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