By Barry Kislingbury, Lead Solutions Consultant Consumer Banking Europe, ACI Worldwide
Many Britons will remember this year’s August bank holiday weekend but probably not for the reasons they would have liked to. A payments systems failure on Friday morning, just before the start of the long weekend, prevented some of HSBC’s business customers from sending payments and thus thousands of employees from receiving their salaries. According to HSBC about 275,000 payments were affected, including payments to customers of other banks.
It was not the first time that there were problems with the IT or payments system at a UK bank. Last year, the Royal Bank of Scotland was fined £56 million by regulators after a software issue in 2012 left millions of customers unable to access accounts. And last September the Bank of England’s CHAPS payment system collapsed for almost a day, leaving thousands of home buyers unable to close deals.
If anything, these incidents underline the fact that the UK’s banking and payments infrastructure needs modernising. To be fair, the current problems are not entirely the fault of the banks. Although many financial institutions have less than ideal IT infrastructures, the continued use of BACS means they are reliant on internal systems that are batch oriented. Moving increasingly to a real-time payments system such as Faster Payments would mean that bank systems can become real-time, allowing banks the opportunity to begin to retire the older batch based systems.
The BACS payments system, which is currently used to process salary payments, takes three days to move funds from sender to the recipient and only operates Monday to Friday. It has worked well for many years, but it is based on concepts and technologies that date back to the 1960s. With this system the payer (e.g. an employer) does not know for sure that the payment has been made successfully, often only finding out there has been an issue when complaints are received.
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The UK has had a very successful Faster Payments scheme since 2008, which facilitates immediate payments, with the beneficiary (e.g. the employee) receiving their funds within seconds, and the payer/employer being notified at the same time that the payment has been made successfully. Moreover, Faster Payments is available 24 hours a day, 7 days a week, 365 days of the year, not just banking hours.
Perhaps it is time for banks and employers to review the payment processes they currently have in place for salaries. Whilst BACS has been a safe and fit for purpose system for many years, attitudes have changed. A recent survey by ACI and YouGov revealed that a large number of consumers now expect electronic payments to be processed within seconds or minutes.
So what can corporates do? The first step, which would be easiest for them, is to see if their bank can receive a BACS file and translate into a Faster Payments file, which would require no change on the corporate’s part. However, the downside to this is that there is no positive confirmation (which is a key benefit of Faster Payments) that the payment has been sent and received.
Corporates do have another option, they could use the DCA – Direct Corporate Access – to send a batch file in the same format directly to VocaLink, which runs the UK’s Faster Payments scheme. Via this method the corporate would be able to send the payment in real-time, continue to see just one debit (not thousands) on their account and receive positive confirmation in near real time that the payments have been made. This way if a failure occurs, we don’t have to wait three days to discover it and then spend the weekend re-running the batch process as HSBC had to do. In order to send payments via DCA the corporate would need to be a customer of a ‘sponsor bank’ that offered DCA services, but very few banks offer such a service.
In the future, as the scheme and services develop further, corporates may want to un-batch certain payments, and instead send them as individual payments to the bank, however this would require re-engineering of the corporate’s processes and tighter host to host integration with their bank.
As the solutions for using Faster Payments over BACS become more sophisticated, the more benefits corporates will see as they will have greater visibility and thus greater control over their cash flow. Employees would benefit as well, for example temporary staff, who only work for a day could receive their money before they get home. I have used employee payments as an example but the solutions described above could easily apply to invoice payments as well.
The idea that the most important payment most people receive, namely their salary, should take so long to reach them seems out of touch with how technology has evolved and improved customer experience elsewhere. Given that the UK already has the necessary payment systems to support real time payments, it should not be a big ask of the banking sector in the UK to have a firm plan to look to retire BACS in favour of Faster Payments, and moving salaries across would seem to be a good first step towards achieving that.