Move to speed up cheque-clearing

Move to speed up cheque-clearing

The Office of Fair Trading could force high-street banks to speed up the time it takes for cheques to be transferred between accounts.

The competition watchdog is preparing to turn its attention to the three-day cheque clearing cycle after finalising its investigation into automated payments such as direct debits and standing orders.

The OFT's payments systems task force, set up in Gordon Brown's pre-budget report in November 2003, is expected to announce an agreement between the big banks in the coming days, which will allow direct debits and standing orders to be transferred overnight rather three days as under the current system.

The agreement, which is thought to have been clinched shortly before the election was called, will clear the way for the task force to begin work on cheque clearing.

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Cheques take three days to work through the system, or sometimes four in the case of cheques paid in England and Wales and drawn on a Scottish branch of a Scottish bank. In some instances, though, it can take considerably longer.

According to Apacs, the UK payments association, the three-day system works as follows. On day one the cheque paid in is processed that evening; on day two it is physically delivered to a cheque clearing centre; on day three the cheques are scrutinised by the relevant banks and then honoured or returned.

The payments systems task force is scheduled to begin its work on cheque clearing in the autumn and is expected to commission research on the system to gauge the level of demand for a speeding up of the process.

It may yet take months of negotiations before the process is speeded up. Although cheques are gradually falling out of use after reaching a peak in 1990, the pieces of paper are still popular in the business sector for paying suppliers.

Apacs estimates that only one in six regular bills is paid by cheque, compared with one in three as recently as 1995, and that the typical adult receives only seven cheques a year.

Direct debits and standing orders have increasingly replaced cheques. The move to speed up these automated payments will not only affect the speed with which utility bills are paid but also the time it takes for money to be transferred between accounts on the internet.

Guardian Unlimited © Guardian Newspapers Limited 2005