Banks tighten up clearing process

The days of waiting a week for a payment to clear could soon be over, following an agreement today between banks and building societies to speed up clearing times. However, cheques will continue to be processed at the current rate.

Bill payments and payments to account holders at other banks will be cleared on the same or next day as the instruction is made, depending on the time of day the payment is initiated.

The agreement applies to electronic payments between banks, following telephone or internet instructions from customers, as well as standing orders.

Currently transfers can take three to five days to go through, during which time the paying banks earn interest on the sum being transferred. In 2003, the Office of Fair Trading (OFT) said the delay between money leaving one account and arriving in another saved banks £30m in interest payments.

Today's announcement follows work by the Payment Systems Task Force, chaired by the OFT, which includes representatives of banks, building societies, consumer and business groups, the Treasury and the Bank of England.

Jonathan May, the OFT's director of markets and policy initiatives and chairman of the task force, said: "This is good news for bank customers, both personal and business.

"Telephone and internet payments and standing orders should all be speeded up and the money could be available to the recipient on the same day.

"I am very pleased with the way the banking industry, the consumer and business organisations, the Treasury and the Bank of England and the OFT have all been able to work together to secure this important change."

However, it could be two-and-a-half years before consumers benefit from faster payment clearing. An implementation group set up by the Association of Payment Clearing Services will report back to the task force within six months, and the industry says it could take two years from that date to set the new system in place.

A working group set up by the task force to examine issues relating to cheques will not come into action until October 2005.

Laurence Baxter, senior policy adviser at consumer group Which?, described today's agreement as "a long-delayed step forward".

He said: "Which? will be holding the industry to its own proposed timeline. People will not tolerate any further delays. Two-and-a-half years is long enough to wait. The challenge for the banks in the meantime is to see if they can introduce this before the deadline. Banks could use this as a competitive advantage.

"This task force process only works if it demonstrates action, not promises. If the banks cannot honour this promise then Which? will campaign for tight government regulation to force banks to give customers a fairer and more efficient service and scrap this £30m racket.

"We also caution the industry to think long and hard if it's considering passing the cost of this faster clearing on to consumers. To charge us for a better service would be wholly inappropriate."

The National Consumer Council (NCC) said that the timetable for putting the plans into practice should be tighter, and that the timetable for faster cheque clearing must also be accelerated.

NCC chief executive, Ed Mayo, said: "The two-year deadline for the banks to introduce next-day payments looks over-generous. And cheques must not become the Cinderella of the bank payments system. A donkey could deliver cheques faster than banks can put money into customers' accounts.

"There are still 6.5m cheques issued every working day, so the system needs to work speedily for everyone - whether they use cheques or electronic payments. The new cheque clearing working group must challenge itself with a tight timetable for action or the industry could face early legislation to speed up the process."