Funds transfer

For any organisation that uses the BACS financial clearing house system to honour supplier invoices, collect direct debits from customers or transfer wages to employees, 1 January 2006 is an unbreakable deadline. By that date, all 40,000 BACS customers will need to have migrated from the old BACSTEL system to BACSTEL-IP, the new network for near real-time payments using Internet Protocol (IP) technology that promises reduced processing costs and faster payment submissions.

At present, few companies seem to be viewing that deadline with any sense of urgency – a mere 10% have made the switch in the 15 months since BACSTEL-IP became available.


NewBACS – an overview

The BACS system enables customers to submit payments directly or indirectly via a bank or a BACS-approved bureau.

BACSTEL-IP is just the first phase of the NewBACS programme but it is the only one to affect customers.

The benefits of BACSTEL-IP for businesses and customers include the ability to track payment status information online and keep businesses records accurate and up-to-date in near real time. The system also offers online electronic reporting, automated receipt of payment and faster payment confirmation. Public Key Infrastructure and Public Key Cryptography are embedded for increased security.

The existing BACSTEL service will run alongside the new delivery channel until all customers are upgraded in 2005, after which the existing BACSTEL system will be discontinued. Customer migration began in 2003 and will finish on 1 January 2006.

Once a sponsoring bank is live with BACSTEL-IP, all new users will only be able to use the new system. Companies that require new customers to be set up on the old service before the deadline should be able to do so on request to their sponsoring bank.

BACSTEL-IP is available from suppliers of BACS-approved software. BACS claims that its approval procedure ensures that all BACSTEL-IP software and customer service standards are maintained at the highest level.

The cost of BACSTEL-IP for individual organisations depends on the type and configuration of the system chosen to submit payments. Software suppliers will establish their own charges for packages, which will normally be dependent on the range of features and options chosen and whether it is an upgrade to an existing package or an entirely new system. The overall cost of a migration to NewBACS will also be determined by whether an end-user organisation needs to upgrade systems hardware or operating systems to support NewBACS. Large companies must consider the costs associated with BACSTEL-IP project management and the likely need to redirect IT department resources to ascertain policy and technical requirements.

Adrian Stafford-Jones, founder and managing director at Albany Software, the e-transactions software company which offers a BACSTEL-IP approved solution, claims that the cost of the new system for small businesses will be upwards of £1,000, with large companies paying £10,000 and up.

Businesses who prefer to write their own BACSTEL-IP solution, meanwhile, can do so under the new system but must conform to BACS’ technical and quality specifications and the conditions and testing mandated under the BACS Approved Software Service.

BACSTEL-IP offers the ability to submit payments and collect reports across three connection types: First, BACS Dial Extranet provides a secure private connection, dialed into via a modem or an ISDN line; second, BACS Fixed Extranet is for large customers who require a dedicated, resilient, ‘always-on’ and managed connection; finally, the BACS Internet service is suitable for customers wanting to use their existing Internet connection and keep costs down to a minimum – however, BACS connectivity and throughput guarantees, as well as service level agreements (SLAs), do not apply to customers using that approach.



But executives at BACS, its software providers and its financial services partners are warning that this is no time for complacency.

“BACS’s message to customers is migrate to NewBACS now because it doesn’t cost too much to do, is absolutely necessary and can’t be avoided,” says Mike Hutchison, BACTEL-IP migration manager at BACS.

But given the relatively long lead time, why the rush? The answer is simple, according to Adrian Stafford-Jones, founder and managing director of Albany Software, the e-transactions software company that offers ALBACS-IP, a BACSTEL-IP approved solution. If the number of late-starters does get too high close to the deadline, he says, it is possible that BACS, its approved software companies and banks may not be able to cope with a sudden surge in demand for migration advice and services.

“Educating BACS customers so that they see the benefits of migration, realise how serious the issue is and that they need to get their act together quickly is something that the whole industry is doing,” he says. “Early adoption avoids the potential demand-and-supply bottleneck that might occur as companies rush to comply with the deadline as it approaches,” he says. “Customers who don’t make the move now risk placing their commercial operations in serious jeopardy.”

Moreover, says Stafford-Jones, migration to NewBACS requires significant process review for large organisations and can take up to nine months to complete once the planning, budgeting and implementation timescales are considered.

To add to the pressure, there are two earlier deadlines for organisations using BACS’ authentication/encryption service (30 September 2004) and its X.400 ADDACS mailbox offering (31 March 2005).

No cause for concern?

BACS’s Hutchison claims that the sluggish rate of migration so far is not a cause for concern. “We have got passed the early adoption phase and are now ready for mass migration,” he says. “Plus, it’s important to remember that large companies are using the switch as an opportunity to do a strategic review of BACS within their businesses. So while they haven’t fully migrated, they’re still well into the process.”

Of the companies that have already installed BACSTEL-IP, however, few have allowed their experiences to be published via BACS’s website ( or been cited in press releases from approved BACS software providers.

Those that are prepared to talk about their NewBACS migration projects suggest that the process is relatively straightforward. Phil Pettit, corporate information, computing and technology programme manager for Colchester Council in the UK, claims that its migration to BACSTEL-IP was one of the Council’s simpler projects and that it “made sense to get it over and done with now”. Colchester Council took part in a small pre-pilot using ALBACS-IP and sponsoring bank, Barclays.

Richard Moss, finance systems programme manager for Northumbrian Water in the UK, which is close to completing its migration, also claims that implementation itself is not an arduous one. “If companies commit sufficient resources and thought to the planning stage, consider the benefits of BACSTEL-IP for their organisation and ensure that they choose the correct software, they shouldn’t have a problem,” he says.

More information and best practice advice should emerge in the coming months. BACS’s approved software providers are holding events, seminars, briefings and live demonstrations of BACSTEL-IP to persuade companies to make the switch.

Take, for example, Eiger Systems, a software provider that has developed a BACSTEL-IP solution called EigerPAY Gateway. The company held an event in London in May 2004 that was attended by over 300 delegates. The software supplier has also launched a new website (, a resource centre dedicated to providing information on how to best exploit BACSTEL-IP and improve payment processing.

Eiger has also published a step-by-step guide to implementing BACSTEL-IP. In particular, the guide warns about two key issues that it says companies need to address urgently. The first is to talk to their sponsoring banks, as each financial institution will have its own schedules and priorities for migrating its customers to BACSTEL-IP. The second is that migration for large companies will have a significant impact on many aspects of their current processes and procedures, and so the sooner they start the switch, the less painful it will be.

Despite the educational resources on offer, however, Albany’s Stafford-Jones concedes that it is inevitable that some customers will not meet the deadline. “Those that don’t will have to employ the services of third-party bureaus which will be able to handle their data for a while,” he says. “Banks could also process transactions but that will come at a significant expense. Plus, the majority of banks will be reluctant to run two parallel systems forever because it will cost them a lot of money.”

The message is clear: Overall, BACS customers will save themselves a lot of grief – and damaging disruptions to day-to-day operations – if they plan ahead and decide to migrate now.


Most important NewBACS features to customers (scale 1-5*)
The system will have heightened levels of security   4.5  
Software for the new system must be approved by BACS 3.9
Customers will be able to check the progress of a file submission themselves 3.7
Data quality checks will be mandatory using ISCD and modulus checking 3.7
The new system will provide electronic access to BACS processing reports 3.5
Customers can update their own user details directly with BACS 3.4
The system will be the primary channel for new services in the future 3
Source: BACS * 5 represents features of most importance to customers

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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