The move to an IP network is central to Bacs' £75m technology overhaul. The project, which is due to be completed by 2005, will modernise the service's security and help it to handle growing demand for electronic payments.
The IP network will replace Bacs' current private telecoms link, which is used by more than 40,000 companies for sending financial information to the clearing house, including salary payments.
"Within three years of go-live we expect that the current Bacstel service will have been replaced by Bacstel IP," said Martin Wilson, manager of the Bacs modernisation programme. "We are not introducing the system with a big bang - there will be a migration."
Benefits to customers will include faster payment confirmation and the ability to track the progress of payments online, rather than having to wait for receipts for confirmation.
The IP-network will be supported by a public key infrastructure (PKI) security system, developed by Bacs and its members, which include the high street banks.
Customers will have the choice of using the Bacs-based digital certificate system or a rival service, as long as it conforms to security and technical standards outlined by Bacs.
The move will be welcomed by critics of past poor security at Bacs. Last year Computer Weekly revealed that the clearing network, which handles billions of pounds, was vulnerable to hacking attacks because the Bacs board had failed to implement the security recommendations of its own IT department to introduce a PKI-based security system.
Bacs denied that the network was vulnerable and insisted that its security was first class.