The current Bacs IT infrastructure is based on batch processing which can only handle direct debit and credit transactions in a group. The batch processing system means businesses have to wait three working days for payments to be cleared.
The IP network - part of a four-year IT shake-up worth about £60m - will allow banks to process transactions more quickly and offer a next-day service for processing direct debits and credits, Bacs said. The network will also play a key role in helping Bacs meet a steady rise in demand for its service over the next five years.
The industry initiative comes at a time when banks face mounting pressure from regulators and MPs to improve customer service and invest more heavily in Internet-based technology.
But the technology blueprint - due to be ratified by the Bacs board in April and to complete its consultation period in May - will need long-term commitment from the banks.
The high-street banks will have to integrate with the new Bacs network and work closely if they choose to develop speedier payment services.
Tim Gregory, IT director for Bacs, said, "This represents building a payment infrastructure for the 21st century. We are looking at support from the banks for a major investment in the payment industry around technology renewal."
Bacs is currently in discussions with suppliers over the new project and will announce the successful bidders in April, Gregory added.
The revamped Bacs will move to a Web server infrastructure based on Unix. This will replace the ICL mainframe for payment processing and Compaq Tandem hardware for managing the telecoms links. A middleware layer will link the system's different business processes.
Bacs, which is one of the world's largest clearing houses with more than 40,000 registered users, currently processes 3.5 billion transactions a year and forecasts that the number of transactions will hit 5 billion by 2005 - an increase of about 10% a year. Government plans to pay Department of Social Security benefits electronically over the next five years will also rely on the Bacs direct debit service.
Under the new IT infrastructure, transactions can be processed individually as they arrive.
New services planned under the IT overhaul include a payment-tracking service for customers similar to that offered by mail service companies, and the electronic distribution of reports. A payment warehousing service will allow companies to lodge regular payments in advance with Bacs to be paid at a specified date.
Bacs, which was established in 1968, is owned by the major banks and building societies and operates under the umbrella of payment clearing association Apacs. Ten million direct debits and credits are processed each day.
Bac's IP timetable