From October, banks - including Barclays, HSBC and Royal Bank of Scotland - are expected to begin using the new network for connecting customer payments to the Bacs clearing system following the completion of trials.
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 launch of the IP network, which is due to be in place by 2005, will mark a major milestone in Bacs’ £75m technology overhaul. The investment is designed to help Bacs meet growing demand for electronic payments and compete in an increasingly competitive European market.
The network will replace Bacs' private telecoms link, which is used by more than 40,000 companies for sending salary payments and other financial information to the clearing house.
The IP network will be supported by smart card and Public Key Infrastructure (PKI) technology. Various suppliers, including Albany Software, now offer customers payment software compliant with the new IP network.
In 2001, Computer Weekly revealed that the multibillion-pound clearing network was vulnerable to hacking attacks because the Bacs board had failed to implement recommendations from its IT department to introduce a PKI security system and services. Bacs denied that the network was vulnerable and insisted that its security was first class.
The new IP network will allow companies to receive electronic conformation that a payment has been received by Bacs rather than by post, as occurs under the existing system.
Bacs is also committed to restructuring its IT department. A "new ventures group" will develop technology, while a standards arm will govern the £3.7bn worth of direct debit and direct credit transactions processed by the clearing house each year.
IT staff in the new ventures group will scan the payments market for opportunities and partner with software suppliers to develop services for banks
The bulk of Bacs' 200 IT staff will continue to support the clearing house's IT operations and the technology overhaul.