Bacs looks to India as IT overrun drives price hike

The UK clearing house is raising its charges, considering outsourcing and cutting its staff by up to 20%.

The UK clearing house is raising its charges, considering outsourcing and cutting its staff by up to 20%.

Bacs, the UK clearing house, has increased charges to its bank members to boost revenue as it struggles to modernise its IT systems.

And Computer Weekly can reveal that, in a two-pronged drive to reduce its running costs, Bacs is in secret talks to outsource the technical maintenance and support of its core IT infrastructure to an Indian-based supplier and is considering axing up to 20% of its permanent workforce, many of whom are IT professionals.

Union leaders said IT staff morale at the clearing house, which processes the UK's salaries, direct debits and credits, has been shattered by the effort to cut costs.

Bacs is spending £75m overhauling its technology in an attempt to modernise its security systems and help it to handle growing demand for electronic payments.

Industry insiders said the increase in transaction fees to Bacs' bank members, the first in about 10 years, was partly because its technology modernisation programme, dubbed New Bacs, was running over budget.

A move to an IP-based network is central to the project, and is due to be completed by 2005. The IP network will be supported by a public key infrastructure security system developed by Bacs and its members, who will also migrate to the new network.

Under the proposed outsourcing deal HPS, a joint venture between HCL Technologies and Perot Systems, will support Bacs' current telecoms link to customers, while the new IP-based network is rolled out.

About 20 staff in Bacs' application management and heritage systems departments would transfer to the outsourcing supplier. No decisions have yet been made about the outsourcing deal or the extent of likely job losses.

Union leaders at Bacs said morale in the IT department was at "rock bottom" despite the clearing house agreeing a generous redundancy package.

Analysts said the outsourcing deal is unusual for financial services because it covers transaction processing. Most deals have been for application development.

Meanwhile, Bacs is on the verge of a radical restructuring. Last year Computer Weekly revealed that the clearing house plans to split into two separate companies: one for infrastructure, and the other covering services.

The proposal has been agreed in principle by the Bacs board and is expected to take shape imminently, insiders said.

The infrastructure company will process transactions and develop payment services and technologies for the high-street banks. The services business, made up of member banks and possibly overseen by payment clearing association Apacs, will be responsible for running Bacs' direct debit, credit and payroll services.

Analysts believe the split could provide a timely boost for the UK payment industry, which has been criticised for failing to offer businesses real-time payment services and for not applying technology to reduce the three-day cycle for clearing cheques.

Bacs said it had been working with HPS since last year to support its "heritage" systems. It added that a consultation was under way to agree the transfer of a small number of staff to HPS.

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