Banks agree to transfer money faster

Banks agree to transfer money faster

Britain's high-street banks plan to radically speed up the time it takes for direct debits and standing orders to be transferred between accounts, after intervention by the Office of Fair Trading.

An announcement about the ground-breaking plan is likely to be delayed by the general election on May 5 as the OFT would not want to issue statements with political connotations before voters go to the polls.

But industry sources said the banks were committed to processing automated payments overnight, rather than the three days it now takes to move the money electronically.

The matter has been under discussion at the OFT since the November 2003 pre-budget report, when Gordon Brown, the chancellor, charged the competition watchdog with analysing the apparatus that moves money around the banking system.

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As a result, the OFT set up the payment systems taskforce, which meets four times a year. The taskforce is largely dominated by representatives of the financial services industry, although major retailers, small businesses and consumer groups are also involved.

After discussions with the taskforce, the industry is now ready to tackle the problem, particularly after the chairmen of the "big six" banks - Barclays, HSBC, Royal Bank of Scotland/NatWest, Lloyds TSB, HBOS and Abbey - were asked to take action. The matter is thought to have been discussed at a recent meeting between the bank bosses.

The industry has yet to devise the method by which the acceleration will take place. But a spokeswoman for Apacs, the trade association for institutions in the payments systems, said: "Whereas a year ago it was whether [it would be done], we are now looking at how it will be done."

The payments system was one issue highlighted by Don Cruickshank in his Treasury-commissioned review of the banking industry five years ago as helping to generate excess profits for the banks.

Mr Cruickshank urged Mr Brown to set up a separate payments regulator - PayCom - and earlier this year accused civil servants of watering down the chancellor's original plans to set up a new regulator.

The issue caused controversy among the banks when they reported combined profits of more than £30bn last month.

Eric Daniels, Lloyds TSB's chief executive, warned that speeding up processing would benefit utility companies rather than consumers.

But industry sources noted that customers moving money between their own accounts - something that has become more common since the use of internet banking - would also benefit.

During the discussions with the OFT taskforce, the banks have been concerned about tackling fraud and revoking payments if the processing system is speeded up, as well as the cost.

While the precise cost of introducing the new system has yet to be acknowledged, some banking groups may incur expenses of millions of pounds. Others are thought to be confident that the project can be initiated at the flick of a computer switch.

Guardian Unlimited © Guardian Newspapers Limited 2005