Banking - three day payment cycle

[jd005403]

Hello People,

 

I've noticed a number of threads where people have been querying the length of time it takes to transfer money. I am an IT consultant and over the years I have been involved in a number of projects which have brought me into contact with the BACS payment system used to process direct debits, credits and bank transfers. I'll share some of what I have picked up over the years:-

 

If money is transfered between accounts held with the same institution there should be now delay in transferring funds as this should all be done by their own internal systems and there certainly should not be any three day delay.

 

There are two ways to transfer funds between different institutions and these are BACS (three day payment cycle) and CHAPS (instant payments). As far as I am aware all(?) banks will charge you a trumped up fee to do an instant CHAPS payment.

 

Now BACS is where it gets really interesting. This is the method by which most transfers and bill payments get processed. Even in this day of lightening quick computers and the internet good old BACS chugs along on its trusty three day cycle as follows:-

 

DAY 1:

Customer decides to make a payment, say to pay an electricity bill. They instruct the bank to make the payment and in most cases the amount will be debited to the customers account immediately.

 

Overnight on DAY 1 the payments are submitted to the BACS centre for processing. DAY 1 is known as the BACS submission day.

 

DAY 2

It is now out of the Banks hands. DAY 2 is the processing day at the BACS centre where transactions are processed and batched up ready for sending overnight to the individual Banks. DAY 2 is known as the BACS processing day.

 

DAY 3

This is the key day and is the day of simultaneous debit/credit. The key word is simultaneous because as you have seen it is the process which actually takes three days but the funds do not leave your own Bank until DAY 3 and the benificiaries bank does receive the funds until DAY 3. I think there is an SLA somewhere which states that the debit/credit operation must be completed by 9:30am on DAY 3.

 

BACS days are business days (i.e. no BACS processing is done over weekends and bank holidays). If DAY 1 is a Friday then DAY 2 will be the Monday in terms of the BACS payment cycle.

 

By debiting the amount from your account on DAY 1 they are in fact holding onto your money for a further two days without paying you any interest.

 

Statistics for 2003 show that there were approx 4 Billion BACS transactions and by just doing a simple "back of a fag packet" calculation you can see that the banks are depriving customers of huge sums of money per year in interest.

 

Cheque clearing is done differently and I do not feel qualified to comment on why it takes an age to clear a cheque...maybe someone in the know could enlighten me?

 

This is just another way the Banks are treating their customers as mugs.

 

If anyone wants to know how bounced debits are processed then thats a whole different story....;-)

 

Take a look at http://www.bacs.co.uk for futher details.

 

I hope this has helped de-mistify the payments cycle.

 

- Clive

[barracad]

Cheque clearing is done differently and I do not feel qualified to comment on why it takes an age to clear a cheque...maybe someone in the know could enlighten me?

 

Purely and simply to increase profits - no other reason.

 

In Sweden it takes 2 hours to transfer funds, and most other European countries do it the same day, but in Britain it takes anything up to 5 days or more, because they make money on your cash by investing it in the overnight stock markets.

 

In February 2004 the OFT said they believed "...the banks are exploiting the clearing processes for their own benefit with no counterbalancing benefit for their customers". Yet still nothing has been done about it.

[Guest NATTIE]

Barracad- in terms of clearing cycle for cheques, you're not correct. Day one cheque goes to branch and is sent to processing centre by courier, Day 2 it is batched up and sent to receiving bank, Day 3 it earns customer interest while not cleared and cheques received by receiving bank, Day 4 and the cheque can be returned and debited off the crediting account, Day 5 and really last day when cheque can be returned(cust can draw on funds from ATM) Day 6 and cheque should be yours.

Only differnece to this is House cheques. that is when a cheque is drawn on the same bank that the credit is drawn on and the clearing time on that is overnight,providing that everything is in house soto speak.

A few years ago there was a program that said that the technology is around that could speed up the process to two days. However, the problem you have is fraud because banks have a limit of £10000.00, that is that cheque of that amount or more are the ONLY cheques that are given rigorous checks as to signed correctly and notpost dated. Only exception to this is cheques being returned- those that aren't automatically returned will be checked.

[barracad]

That's a very simplistic view that your employers may have given to you, but the banks do use the funds to invest in the overnight stock markets and therefore profit from it.

 

As for fraud - anybody who has ever received a fraudulent cheque will tell you that a cheque can clear and funds be available but the funds can be reversed weeks or even months later if it is found the cheque was fraudulent.

[Guest NATTIE]

Barracad, I agree with you inrelation to the fraud thing.

 

In terms of the other bit. Can you invest money you don't have i.e. because the money on the cheque is still in the other persons account? The cheque debits the other persons account on day three. That's when interest(before you say it, a pittance) is paid to the crediting account.

[Dries Coms]

It looks like same day banking has finally arrived. Yihaa !!!

 

Just one question:

 

Are the sort code checker as can be found on sites like: [edited] save and reliable to use ?

Edited May 28, 2008 by Bookworm
link not allowed

[Bookworm]

The link edited then links to here:

 

APACS - Faster Payments Sort Code Checker

 

which is the APACS' own checker, since they're the ones in charge of the whole thing, I should think it is pretty reliable and safe, yes. (or as reliable and safe as anything linked to banking from close or far, that is ).