Your missing millions

By Sarah Modlock

1 June 2005

Somewhere out there is a big black hole. Don't worry, you can't fall into it. But your money does. It's the finance industry's answer to the Bermuda triangle and is run by bankers who use and abuse your cash to boost their own profits.

We now live in the 21st Century and managing our money via the internet and telephone is de rigeur . Gone are the days of the banking paper trail when men wearing half-moon glasses scrutinised figures all day to make the books balanced in your local branch. The chances are that your local branch is gone too. But what remains is the ridiculous amount of time it takes banks to clear electronic transfers and cheques. And while your money is taking it's good old time to move from one account to another, your bank is earning interest on the millions of pounds which temporarily go 'missing' every day.

It can still take up to four days for electronically transferred funds to clear, earning banks an estimated £30m in interest every year. It's nothing short of a scandal. And the Office of Fair Trading agrees, announcing this month that the delay is unacceptable and giving banks six months to come up with a way of transferring money within 24 hours.

The high street giants have graciously decided to accept the changes which will - eventually - put a rocket under internet, telephone and standing order transactions. However, the new system will not cover the 6.5 million cheques written each day which will still require at least three days to clear. A new system for this will take - wait for it - two years to be introduced. I imagine they have filed the problem in the 'too difficult' tray and are hoping that cheques will become obsolete by 2007. The OFT's payment system task force - a huddle of industry representative and consumer champions - plans to kick-butt on cheques and will look at the problem later this year. But given that the original recommendations for the review of electronic transfers were made five years ago, don't hold your breath.

Ed Mayo, Chief Executive of the National Consumer's Council recognises that our patience as customers is fast running out. ‘It's good that banks are finally doing the right thing,' he says 'but it has taken five years since Don Cruickshank's call to speed up the payment clearing process to get this far. The two-year deadline for the banks to introduce next-day payments, once the implementation group has agreed the way forward, looks over-generous. And cheques must not become the Cinderella of the bank payments system. A donkey could deliver cheques faster than banks can put money into customers' accounts.' Absolutely classic comment. Perhaps the Sun newspaper could put this theory to the test.

Yes, it's good news that things will improve. But let's not fall into the trap of feeling wonderfully spoilt just yet. Author of that five-year-old Treasury-commissioned report, Don Cruikshank recently put the boot in over the lack of progress by the OFT payments group and accurately predicted that his criticism would prompt action. But he told the Financial Times that the announcement for reform was too little, too late: 'This is enough to enable the Treasury and the banks to say they are doing something; yet it is de minimis progress which falls well short of what consumers deserve.' In other words, like a sullen teenager who has been asked to tidy their bedroom for the one hundredth time, the payment group has finally stirred itself and agreed to a spot of dusting sometime soon.

Someone else getting tough is Laurence Baxter of Which? 'This task force process only works if it demonstrates action, not promises,' he says. 'If the banks cannot honour this promise then Which? will campaign for tight government regulation to force banks to give customers a fairer and more efficient service and scrap this £30 million racket. We also caution the industry to think long and hard if it's considering passing the cost of this faster clearing on to consumers. To charge us for a better service would be wholly inappropriate.'

Apparently, the black hole is down to our antiquated 'banking automated payments system' or BACS, which was created thirty years ago. I'll try to resist the urge to make a dig about a bad workman blaming his tools. Most of Europe enjoys same-day transfers but our only current option for a high speed service is to cough up between £15 and £20 for a clearing house payment. No wonder UK banks are making hay while the sun shines. Experts have estimated that collectively they are making more than £30bn, or more than £3m an hour. That's a wage packet that even Coleen McCLoughlin would have trouble spending.

The Association for Payment Clearing Services, which represents the high street banks, has welcomed the agreement but denies that banks profit through delayed transfers. It claims that they make just 1p per week for every bank account in interest. Feeling sorry for them yet? 'Research tells us that for the majority of customers in the majority of situations speed is less important than cost, certainty and security, the advent of the internet has brought with it a growing expectation that online payments should move speedily, at the touch of a button,' says APACs' Paul Smee. It seems that the internet has made us all much more demanding. At last.