The end of Becs and the future of Bacs

Issue 581: 4 March 2024

The Cinderella of payment schemes

The Direct Credit scheme, operated under the Bacs umbrella, is all too often the unsung sibling to Direct Debit – perhaps even being the Cinderella of the Bacs schemes.

But at just under 2 billion transactions per annum it easy to underestimate the role Direct Credit plays in moving the UK’s money around. Notwithstanding 16 years of Faster Payments the humble Direct Credit remains the stalwart of paying the UK’s salaries, pensions and benefits as well as being the payment channel of choice for businesses.

The Bacs Direct Credit that we know today, so embedded in how we move money around, can be traced back over seven decades.

Before the 1960’s cheque processing and payment clearing was entirely manual which led to long processing times and frequent human error.

The Electronics Sub-Committee of the Committee of London Clearing Bankers was formed in the late 1950s to consider the automation of cheque-clearing. The committee set up a New Services Working Party in 1965 to examine the possibility of exchanging data between banks without using paper – specifically, the automated exchange of standing order credits.

This led to the creation of the Inter-Bank Computer Bureau (IBCB) within the Bankers Clearing House, which was tasked with setting up a computer facility.

The automated exchange of standing order credits became the first iteration of what we know as a bulk push payment scheme so we can, therefore, trace the UK’s Direct Credit scheme as far back as 1968.

By 1971 the Inter-Bank Computer Bureau had been renamed as Bankers Automated Clearing Services or ‘BACS’ and had become a separate limited company, it took until 1986 to become BACS Limited (building society membership made the use of the word ‘Bankers’ inappropriate).

 With the Cruickshank Review recommended split of payment scheme and underlying infrastructure provision, the Payment Scheme Operator part of the Bacs clearing became Bacs Payment Schemes Limited in 2003 (BPSL) although the acronym ‘Bacs’ was retained for public use.

In 2018 BPSL was amalgamated into the newly formed Pay.UK who are the current custodian and operator of the Bacs Direct Credit scheme.

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Strong and Stable

From the humble beginnings of automating Standing Orders in 1968 it took until 2000 for annual Direct Credit volumes to reach 1 billion – as a reference point Direct Debit volumes at that point were 2 billion.

In 2003 the Department of Work and Pensions (DWP) migrated the UK’s pension and benefit payments from payment over the Post Office counters to Bacs Direct Credit – this single migration increased volumes of Direct Credits to over 2 billion per annum.

By 2015 Bacs Direct Credit was contributing to breaking Bacs processing records with 12 million of the 103 million Bacs payments processed on the 31 July 2015.

The 2003 DWP migration of benefits and pensions doubled Direct Credits over a 12 month period to 2 billion which, roughly equates to volumes in January 2024. This is because the growth in Direct Credits over the last two decades has been mostly offset by the organic migration of core Direct Credit payments to Faster Payments.