By Paul Lewis
BBC Radio 4 Money Box presenter
Money Box's Paul Lewis travelled to Sweden to find out why bank clearing times there are so much swifter than in the UK.
Swedish bank customers get quicker service
Banks in the UK could introduce a system to move money more quickly but say there is insufficient demand to justify the cost.
This explanation was given to the BBC's Money Box programme which challenged the banks to speed up the three days minimum it takes to move money from one bank account to the other - even if it is done by phone or over the internet.
In Sweden it takes just a few hours - payments made in the morning arrive in the afternoon.
We know the longer it takes, the more money the banks make
Gunnar Lund, Finance Minister in the Swedish Treasury
But Paul Rider, Strategy and Regulatory Director of APACS, which makes the transfers on behalf of Britain's banks, said there were two reasons why faster payments were not done in the UK
"One is the investment cost and one is the market demand. If there was market demand, if enough customers wanted the service, the banks would be very competitive in offering it. Until that materialises the sheer cost of investment is an inhibiting factor," he said.
Banks in Sweden had put up similar arguments. Until recently they took three days to transfer money, much the same as the time taken in the UK.
But they were forced to change by the Swedish government and the financial regulator who got fed up with their excuses for delays.
"The banks were dragging their feet and that wasn't terribly surprising as we know the longer it takes, the more money the banks make," said Gunnar Lund, Finance Minister in the Swedish equivalent of the Treasury.
"So we put pressure on them and told them unless they bring down these time limits we will take legislative action. This had an effect."
Swedish banks found benefits in the faster system
The threat was followed up by the Swedish equivalent of the Financial Services Authority, where Kerstin af Jochnick is the director responsible for banks.
"We issued recommendations to the banks and we set pressure on them saying you have to transmit money in a fast and efficient way," she said.
"We couldn't regulate exactly whether it was one day or two days but we wanted them to make it faster. It is very important to Swedish customers that this period of time is very short."
Simple and cheap
The result is that since April 2002 the banks now transfer money within a few hours.
One bank, SEB, guarantees that money transferred before 1.30pm will arrive the same day - or it pays compensation. Although they were forced to do it, SEB's head of e-banking Peter Svenfelt says it was a good decision.
"We lost two days [interest]. But our customers are pleased with us and we think that is more important because they make more business with us," he said.
We are putting an infrastructure in place which will enable faster payments
And, despite the protests of the British banks about the cost, the banks in Sweden say the change was simple and cheap to make. Leif Trogen runs the Swedish Banker's Association which also operates the clearing system there.
"I would say it was very easy. The only thing we had to do was to invest some money in the infrastructure at the automated clearing house," he said.
"This transfer system for electronic payments on the internet was done on a platform that was actually developed 25 years ago for clearing cheques. The cost was around five million Swedish Kronor (£385,000)."
Although APACS is investing £100m in upgrading its payment infrastructure, Paul Rider stressed that may not mean faster payments.
"We are putting an infrastructure in place which will enable faster payments, same day payments, to take place. It's on track for early 2005, but in addition to that the banks would have to upgrade their own systems and there's not yet a firm date for that. Banks will do it when market demand materialises," he said.