Clearing house to embrace e-services by hiving off IT

Bacs, the UK bank clearing house, is poised to undergo a radical restructuring, which aims to transform the way payment services...

Bacs, the UK bank clearing house, is poised to undergo a radical restructuring, which aims to transform the way payment services are developed and delivered over the Internet.

The proposed restructuring will see the clearing house, which handles billions of pounds in salary payments, is due to split into two separate organisations.

One company will be responsible for running the IT infrastructure of Bacs, processing transactions and developing new technology for commercial use, Computer Weekly can reveal after speaking to industry sources close to Bacs.

The other business, made up of Bacs' member banks and possibly overseen by payment clearing body Apacs, will be responsible for running Bacs' direct debit, direct credit and payroll services. The companies' branding has yet to be agreed.

Changes to the ownership of Bacs will also allow non-banks to become members of the elite financial club.

The restructuring blueprint, which has been approved in principle, comes at a time of intense activity in the payment market, with banks and telecoms suppliers scrambling to deliver new services online and through mobile phone technology.

Analysts believe a revamped Bacs will help to foster a more dynamic approach to developing payment technology with software suppliers partnering with the banks.

UK banks have come under fire from the Government and analysts for failing to offer businesses real-time payment services over the Internet and not applying technology to reduce the three-day cycle for clearing cheques.

Previous attempts by the banking industry to pool their resources and develop common technology - for online billing and real-time payments - have either been abandoned or mothballed.

Duncan Brown, consulting director at Ovum, said there was room for improving the way Bacs uses IT. "The basic [internal] process has stayed the same for about 20 to 30 years. Bacs could harness the networks and technology from inter-banking networks such as Swift, Link or Visa, to reduce cheque clearing times," he said.

Brown warned, however, that a rift could emerge between the two Bacs companies, over exactly what kind of technology should be developed and when.

"There could be a possible disconnect between the banks and the Bacs infrastructure company [over] what the business wants and what the IT department can deliver," he said.

One banking industry source close to the restructuring discussions said the changes would widen the choice of payment network providers that the banks can work with to deliver services to customers. "You would have competing infrastructures for the banks to use. The banks could choose to use Visa or Mastercard rather than Bacs," the source said.

Industry watchers added that the clearing industry is ripe for consolidation and predicted that European clearing houses would attempt to break into the UK market over the next couple of years, particularly if the UK finally adopts the euro.

In a statement, Bacs said it had undertaken a review of its corporate governance in consultation with its member banks. It added that it would make an announcement after the review was complete.

The break-up of Bacs
Restructuring plans will split Bacs into two companies:
  • One will run Bacs' IT infrastructure, process transactions and develop new technology when required

  • A scheme company, comprising the main banks, will run direct debit, direct credit and payroll

  • Non-banks will be allowed to become members of Bacs, paving the way for software suppliers to develop payment services in partnership with Bacs.

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