Bacs in United Kingdom

Bacs Service

The Bankers Automated Clearings System (Bacs) is a service owned by Bacs Payment Schemes Limited and operated by Voca Limited enabling companies to make payments and debits within the UK. In other words, the Bacs service is a computer system which sorts automated payment instructions to allow the transfer of funds electronically. See also Direct Credit and Direct Debit in this Encyclopedia.

Introduction to Bacs

Bacs is a central payment system used, specially before 2012, to process several different types of electronic payment. The vast majority of Bacs payments are Direct Debits or Direct Credits (used by business to pay, for example, wages, salaries, pensions, state benefits and tax credits).

History of Bacs

In 2005, the Bacs working group was looking at whether the Chaps system (Clearing House Automated Payment Scheme) could be expanded to handle more frequent and smaller money transfers. Chaps transfers money instantly but is primarily used for large transfers between companies or for when individuals put down a property deposit. There is currently a fee paid to use this system.

Bacs is an electronic system that for many years has been used to process Direct Debits, direct credits and standing orders for UK banks. Before 1 January 2012, to transfer funds to another person at another bank, Bacs was used.

Because it takes three working days for Bacs payments to be processed, most Banks recommend Faster Payments, which was launched in 2007. Faster Payments is an almost instantaneous system which is available seven days a week and 24 hours a day. Faster Payments has their own limits, and the Banks have also limits regarding Faster Payments deliveries. Furthermore, not all accounts (for instance some saving accounts or deposit accounts) enable users to send Faster Payments.

The Payment Services Regulations provided that all sterling payments made within the UK must reach the beneficiary bank by the next working day with effect from 1 January 2012. This means that financial insititutions were not able to use the bacs payments system because this system takes 3 working days to clear payments.

How does it work?

Usually the Banks select the method of payment, and the customer Direct Debits will be automatically directed through the payment system. If the customer desires to transfer money out of an account (such as a savings account) which doesn’t allow Faster Payments using phone or internet banking, it will automatically be processed via Bacs, with the three day delay.

Bacs payments can be made within the customer and Bank agreed limits, but this may not reflect the customer´s available funds on the day of debit.

Before using Bacs, the customer usually will need to agree a limit with the Bank, for which security may be required and a charge may be payable.

There are more information at www.bacs.co.uk.

Security issues

As other methods of payment, the Bacs central system itself uses layers of security built into the processes that banks and businesses use to process payments through Bacs.

One of the layers of security is that only approved businesses are allowed to collect Direct Debits. Therefore, in the event that anything goes wrong, there is a Direct Debit Guarantee in place. Full details can be found on the Bacs website.

In general, regardless of the type of electronic payment, the customer should enjoy the same level of protection, with an immediate refund for any innocent victim of fraud. Claim needs to be made within the 13 months of fraudulent transaction leaving the customer account.

See Also

Standing Order
Direct Debit
Payment Methods
CHAPS
EFTPOS
Payments Council
SWIFT
Bankers’ clearing house