Consumer participation in electronic financial services is increasing worldwide, and in the UK, the move towards electronic systems and direct electronic payments is moving along at more leaisurely pace than in the US. BACS faced an embarassing public fiasco over the Easter weekend, when systems crashed, unable to deal with business volumes, and millions of bank users faced an impoverished bank holiday weekend.
BACS spokesman, Philip Pridmore commented: ?We regarded this as a matter of supreme importance. Data is sent via the telecoms networks and it came up against a blockage caused by a faulty gateway. We?ve reviewed our systems and relationship with BT since then, increasing capacity and means of access to the system.?
Notwithstanding many major hiccups, BACS is banging the drum for direct commerce. In a report published this week, it claims that British industry could save up to #8 billion per year by changing billing and payment procedures.
For instance, BACS argues that a company making payments electronically could save between five and six times more than firms that continue to operate cheque-based operations. Similarly, according to BACS?s Pridmore, a company writing only 50 cheques per week could save more than #5,000 a year by switching to direct credit and electronic business systems.
Direct credit has a strong economic rationale, with each transaction costing significantly less than the average 12 pence cost of a cheque - even excluding the additional costs of fully-loaded staff salaries for clerical and administrative functions, and acknowledged generally as two-and-a-half times the net. With the electronic system, each transaction has a number, payments are ordered several days or weeks in advance, guaranteeing that funds move around as requested.
By setting up and order and payment lifecycle with regular suppliers, BACS says companies can facilitate the move towards cheaper and faster transfer of funds, enabling companies to leverage the advantage of longer interest periods - the money is where it should be within three-days, accruing interest or cutting overdrafts.
In 1997, 705 million electronic business payments were made via BACS, up by 29% from 547 million in 1991. During the last 10 years, cheque-based payments to individuals has plummeted by 64 per cent. In 1996, about 40% of cheques were written for personal purchases and only 28 per cent were for business to business. In UK companies, only five percent of business to business payments are made by direct credit, contrasting with the 48 per cent of businesses that use direct credit for some sort of trade payment. It is this lucrative market, in the small and medium business arena, that BACS sees new opportunities.
How will BACS deal with growing competition from companies like the Microsoft and First Data Corp, which are leveraging their IT and Internet expertise and exploiting the new availability of 128-bit encryption for banking facilities? To date, the Internet is little more than a twinkle in BACS? eye, and it faces new challenges over the next few years as Gates ramps up his threat to tackle the dinosaurs of the banking world.
BACS argues that low awareness is the main obstacle to significant take-up of direct credit. Pridmore believes that many companies simply don?t know or understand the possibilities, and others simply prefer to stick with what they know - those paper-based systems that are expensive and overhead heavy.
BACS has produced an interactive Electronic Business Payments Disk to illustrate the benefits of moving to Direct Credit.
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