BBC Radio 4 News and Current Affairs Programmes

INSIDE MONEY:       	Prog 4:	CHEQUES AND BALANCES 

Presenter:			Lesley Curwen

Listener:			Sue Clayton

Producer: 			Jessica Dunbar


DATE 	11th AUGUST 2001     	12.00	RADIO 4
REPEAT        13th AUGUST 2001	            15.00   RADIO 4


RADIO 4 ANNOUNCEMENT:	Now Inside Money - the programme that helps 
listeners investigate the subjects that make their blood boil. This week: Cheques and 
Balances. Sue Clayton joins Lesley Curwen to investigate why it still takes at least three 
days to pay a bill through her bank.	 

CLAYTON:		Morning Tango.  How are you this morning?

CURWEN:		Sue Clayton runs a livery yard in Oxfordshire:  in other words she 
offers bed and breakfast for horses.

CLAYTON:		If you go out on the level we can trot him up and then we can see 
how he is.  He seems to be walking sound.

CURWEN:		Sue gets the horses feed from local suppliers.  She likes to pay 
them on time but can’t understand why it still takes as long as it has for decades for her 
bank payments to reach the suppliers.

CLAYTON:		Hi Charles, Sue Clayton.  I was ringing up to see whether you’d got 
the payments through yet?  Oh they are there. Oh great what day did they come?

CURWEN:		Prompt payments can be a life or death issue for small businesses 
and they’re pretty important for most individuals too.  If things get delayed you can easily 
veer into the red especially over bank holidays and Christmas.  Sue contacted Inside 
Money to tell us about the bee in her bonnet.  She’s annoyed that whether she makes 
payments by cheque, by telephone, or with a click of the mouse using the Internet, it takes 
at least 3 days to go through the banks’ clearing processes.  

CLAYTON:		I have a private account that I’ve had for 40 years and a business 
account that I’ve had for 25 years, and I’m just interested to know why it’s still taking so 
long for money to clear because with the days of electronic banking and instant 
communications, I just wonder where it goes,  who has it, what it’s doing while I haven’t 
got access to it?

CURWEN:		The payments system is the financial plumbing in our national 
economy. It keeps your wages flowing, your bills paid and business ticking over, but for 
Sue it’s still irritatingly slow, even though she pays her suppliers by Internet transfer that 
doesn’t shorten the process and it costs her 45 pence a time because she’s a small 
business customer.  The money leaves her account instantly at the click of the mouse, but 
the supplier doesn’t receive it until at best 3 working days later and possibly much longer.  
What happens to the money in-between?  To find out we left behind the rolling hills of 
Oxfordshire heading towards the financial centre of the payments industry.

(Fx announcement)

MAN:			Ladies and gentlemen we’re now arriving at London Paddington 
where this trains terminates.

CURWEN:		Sue was in for a crash course on how the payment system works.  
Each different form such as an electronic payment or the cheque has its own clearing 
system run by a body called a clearing house.  These clearing houses are at the very heart 
of the exchange of money and they’re controlled by the biggest banks and building 
societies in the country.  So who sets the rules governing these payment systems?  The 
banks do that as well.  In fact some might describe the whole set up as something of a 
cosy club.  First of all Sue wanted to focus in on the bit of the payment system which 
processes her electronic transfers.  It is a clearing house set up in the l960s as Bankers’ 
Automated Clearing Services known as BACS.  It also handles your direct debits, 
standing orders and probably the salary payments made by your employer.  So why does 
it take 3 days?  BACS were at first reluctant to talk to us.  It seemed to be a more 
sensitive issue than we’d expected.  There was nowhere else for Sue to turn. Only BACS 
could answer our questions.  Finally, Anne-Marie Kesselman, the communications 
manager there, agreed to meet us.  Sue asked her what happens during the 3 day payment 
cycle?

KESSELMAN:	We receive bank payment data from all around the UK on day one, 
and that can be up to 50 million payments and then by 9 o’clock we more or less close 
down shop and we say thank you very much everybody now we’re going to start 
distributing this information, so overnight we process the information.  If I can just paint 
a picture it’s like a big electronic postal system – we get payments in from various 
accounts and we simply then distribute it to other accounts and that information is done 
overnight and by six o’clock the following morning it’s all distributed to the banks’ 
central clearing areas and they then distribute it to their branch network.

CLAYTON:		So you’ve turned it around in 9 hours?

KESSELMAN:	That’s correct yes.

CLAYTON:		So it’s somewhere else for the rest of the 3 days?

KESSELMAN:	Yes, that’s right.  It’s with the banking network.

CURWEN:		Since BACS first began in l968 has the process of payment got any 
faster?

KESSELMAN:	Yes we have seen some reduction.  Whereas before perhaps we 
would have needed a full working day we’re now processing the payments in a matter of 
a few hours.

CURWEN:		But now that’s just your bit of the operation.  The total operation, 3 
days, hasn’t got any shorter has it?

KESSELMAN:	No not really.

CURWEN:		Sue was fascinated to discover her payment only spends about a 
day in the BACS’ clearing house process.  By the morning of day two both the banks 
involved know about the transfer – checks have been made to ensure there’s enough 
money to make the payment and everything’s in place.  But the recipient must wait until 
day three before they see the colour of the money.  So what happens to it after BACS has 
done its bit?  We’ve been told it was in the banking network.  The obvious place to go 
then was to Sue’s bank.
(Fx taxi)

CURWEN:	Hi we need to go to the headquarters of Barclays Bank in the City.  

CURWEN:	Barclays is a major player in the payment system.  It sits on all the boards 
of the UK’s clearing houses.  We’d been in discussions with the bank and made repeated 
requests for an interview but we had bad news for Sue.  

So Sue we’ve arrived at Barclays, here we are at the door but I hate to tell you we’re not 
going in because they wouldn’t agree to talk to us.

CLAYTON:		I thought the banks were supposed to be available to their 
customers.

CURWEN:		In fact what Barclays said to us was that they would be happy to 
talk to you alone but they didn’t want Inside Money with you to record an interview.

CLAYTON:		Well it would seem to me that they’ve got something to hide 
because I’m just an ordinary customer.  I’ve no axe to grind.  I’m just interested to find 
out what they do – how they work the clearing system.

CURWEN:		It was another sign that Sue’s questions had hit on a rather touchy 
issue for the banks.  Barclays later said they had no spokesperson available to do an 
interview with us who could cover all the questions we’d put to them, but they did send 
us a statement.  We had asked why does Sue’s money have to leave her account instantly 
even though it doesn’t arrive in her supplier’s bank account until the third day?

STATEMENT:	The money is moved from an individual account to a central 
Barclays account to ensure that the funds are available to make the payment and that the 
individual account holder can’t use those funds for anything else.

CURWEN:		The bank explained that throughout the entire 3 day process, while 
the money is in a central account and Sue can’t use it Barclays can use it and does.  In fact 
those funds are used to - in Barclays’ words - generate income. In other words they’re 
making interest for Barclays bank itself.

STATEMENT:	We would invest the funds overnight on the money markets.  The 
income is not designated for use for a specific purpose but it is used to cover a small part 
of the costs of providing free services such as cheque clearing, debit card and electronic 
transfers.

CURWEN:		This came as a bit of a shock to Sue, and anyway as a small 
business customer she wasn’t very impressed with the argument that the interest made out 
of her money goes to subsidise free banking.  

CLAYTON:		But the services that I use aren’t free.  On a business account you 
pay for all the transactions that go through that account.  Why should they be making 
money from my money when I’m not?  When you think of the amount of money that 
changes hands every day and goes through the bank’s holding account that they’ve put the 
money in it’s quite a large sum of money.  So even if they’re only making a very small 
percentage it must add up to quite a big sum.

CURWEN:		Well Barclays wouldn’t tell us what that sum was.  They said that 
information was commercially sensitive.  What they did tell us was that on day 3 the 
exchange of money finally takes place.  In the real world that means Sue’s supplier gets 
paid for the horse feed.  But we know that the BACS part of the process only takes about 
a day so what happens the rest of the three days?  We were still struggling to see why the 
banks’ share of the process took so long?  Barclays had suggested we should speak to the 
association of big banks, almost a club which control the clearing houses like BACS.  
This powerful body is called the Association for Payment Clearing Services known as 
APACS.  Oh dear what with APACS and BACS you’ll have gathered by now there are 
lots of acronyms in the dusty world of payments.  Last year APACS had conceded 
publicly with the growth in on-line banking it was really time to speed up transfers like 
Sue’s Internet payments.  There is a limited same day service available designed for city 
types to move big sums of money and for Sue to use it would cost her £20 a go.  But there 
was some better news:  last March APACS had announced that a same day transfer 
service for the mass market would be launched by the middle of 2001. Seventeen months 
ago Richard Tyson-Davies from APACS spoke to our sister programme, Money Box, to 
tell listeners how it would work. We played a recording of what he had to say to Sue:

TYSON-DAVIES:	Essentially it will be possible to move money on a net base system 
from you to a supplier or from between businesses on a same day basis at a low cost.  
This will be a mass market product at a price that people can afford – a payment product 
for the 21st century.

CLAYTON:		Sue was intrigued. She hadn’t been offered anything as fast as this 
one day service so we put in a request to interview Mr. Tyson-Davies to see what had 
happened. We weren’t alone in thinking the current clearing times are archaic.  Logica 
Consulting, an arm of the computer group Logica has just produced a report on the future 
of payment systems.  Sue met Eddy Collier its chief executive who’s unimpressed with 
the way the industry governs itself:

COLLIER:		Certainly there is opportunity, scope for improvement I think one 
could say.  The clearing cycles really are at a level which I think is too great.  They’re too 
lengthy, the payment mechanisms are unnecessarily slow and clumsy.  Certainly the 
technology exists to have something which is much more instantaneous.

CURWEN:		So it’s not the technology that’s standing in the way of this 
happening?

COLLIER:		No certainly not.  But the trouble is the rules are written down by 
the member banks about when they’re going to get paid etc.  And it’s those conventions 
that need to be challenged if you like.  At the moment the governance of those clearing 
houses consists of member banks and the trouble is there really is no incentive for the 
banks and the clearing houses to make investments to improve the clearing cycle.  I think 
what one needs to do is to make sure that you have users, people like you Sue, to sit on 
the board of the clearing houses and therefore put the interests of the users further up the 
agenda.

CURWEN:		So people like Sue should in fact be on the board?

COLLIER:		Yes certainly consumer organisations should be.

CURWEN:		Our listener Sue mulled over the idea of asking APACS for a seat 
on the board, but the meeting with Logica Consulting had clarified things for her.  She 
what’s the verdict on what we heard from Eddy?

CLAYTON:		Well it was very useful to hear him telling us that the technology is 
there for us to be able to transfer money instantaneously and from what he says it seems 
that the biggest sticking point is the banks.

CURWEN:		Surprise?

CLAYTON:		No.

CURWEN:		So Sue had learned the reason why the electronic transfer process 
still took 3 days seems to be down to the big banks which control the BACS clearing 
house operations. Although technology exists to cut it down to a one day process the 
banks don’t have to adopt that.  They can effectively do what they like because they run 
the entire UK payments industry.  So we turned to another much older form of payment – 
the cheque. Cheques have been around for a couple of centuries but remarkably cheque 
clearing times have stayed exactly the same for the last 100 years, through 2 World Wars, 
through the Jazz Age, the Jet Age and now the Age of the Internet.  It might seem an 
antiquated form of payment, but in the UK we still put pen to paper to write 2.5 billion 
cheques each year.  It generally takes at least 3 days to get a cheque through the system, 
although your bank may not allow you access to the money until much later, a fact which 
incenses Stuart Cliffe from the National Association of Bank and Insurance Customers:

CLIFFE:		Small businesses always complain that if they could get instant 
clearance on cheques it would greatly aid them staying in business.  It takes a long time to 
get paid and at the end of the day to add insult to injury, once you have been paid you’ve 
still got this magic 4 or 5 days tagged on the end before the money is actually yours to 
spend. I think the uncertainty factor goes a long way towards explaining why banks are 
reluctant to change this system because if I receive money into my account I’m never 
quite sure whether that cheque has cleared and it’s quite easy for me to make a mistake 
and go into an unauthorised overdraft, so I might be paying a £20 penalty charge or I 
might be paying unauthorised interest rates which almost guarantees that I will pay 
something into my bank account by way of penalty charges.

CLAYTON:		So how long do you think it should take to clear a cheque?

CLIFFE:		There is no earthly reason why it should take longer than 24 hours.

CLAYTON:		Why do you think these changes aren’t happening?

CLIFFE:		I think it’s because there is no competition in the banking industry.  
Eleven banks are the main clearing banks – these are the good old fashioned High Street 
banks. They run the clearing system. Anyone who has access to the clearing system does 
so through these eleven banks, so there’s a strangle hold on the whole process.

CLAYTON:		Is it necessary for all this paper to move round and round the 
country like this?

CLIFFE:		Well we’ve been arguing for some long time that all of the cheque 
clearing business that the banks raise with us is just a big red herring.  Basically they 
could decide tomorrow that if I pay the cheque into your account they would give you 
value for that  cheque instantly. It requires no law. It requires no great decisions. It just 
requires them to have the competition, the business pressure to do that, and this is one of 
the major problems – they don’t have competition.  They don’t have the business pressure 
to make a change.

CURWEN:		So why does it take three days to pay in a cheque?

(Fx centre)

Each day, millions of cheques from bank branches come flooding into centres like this at 
the start of a three day journey around the country.  This is a machine called a reader 
sorter which does exactly what it says on the tin at this large cheque clearing centre in 
London run by one of the high street banks.  Sue was shown how cheques are processed.

MAN:			The reader sorter will read the code line information on the cheque.  
That will allow it to identify the bank of which its drawn and the account number of the 
customer and things of that nature.  And as it’s whizzing through it will take an image of 
the item and software will look to that image to try to determine if it can read the amount 
on the cheque from the customer’s handwriting.

 CURWEN:		The machine takes an electronic picture of the cheques, but they’re 
still physically sorted into piles, boxed up and sent by vans to an exchange centre where 
the banks swap each other’s cheques.  Tons of paper are still driven around the country 
during the payment process, but the technology we’d seen in the clearing centre which 
takes digital photos of cheques some have suggested could provide a route to shorter 
clearing times.  We went to see the Cheque and Credit Clearing company, the clearing 
house which handles all cheques.  We asked Stephanie Watson, a manager there, was this 
possible?

WATSON:		It is possible with something called image transfer.  The 
technology is available but the banking system as a whole would have to adopt that 
technology.

CURWEN:		But would that mean in fact that you could cut down the amount of 
time it takes to get cheques through the system?

WATSON:		Yes it would.

CURWEN:		Has there been a decision to speed up the amount of time it takes to 
process cheques?

WATSON:		It has to be said that the cheque is really not the banks’ principle 
concern at the moment.  The cheque is very old fashioned.  Volumes are falling and as a 
result the banks are unlikely to want to invest the large sums of money in improving the 
cheque clearing system when it is seen as a falling market.

CURWEN:		So far it’s been entirely up to the banks whether they decide to opt 
for faster systems.  Effectively they’ve been able to run the network as they please at a 
slow pace but that may be about to change.  Last year they were held to account, forgive 
the pun, by a hard hitting enquiry commissioned by the Treasury into competition among 
banks.  The man who headed the enquiry former telecoms regulator Don Cruickshank 
concluded there were what he called real problems with the way banks control the 
systems which allow money to flow round the economy, and he said the only way to 
tackle this was to make the banks’ payment systems for the first time subject to 
regulation.  Since his report emerged the government has been considering what to do.  In 
the meantime we decided to seek out one player with a unique perspective on all this – 
one that fulfills a key role in the payments industry.  It’s the Bank of England.

So Sue, here we are walking down the marble corridors of the Bank of England – what do 
you think now you’re inside?

CLAYTON:		It’s really overwhelming in here.  I mean these amazing floors and 
huge high vaulted ceilings and a gallery up there going even higher up with marvellous 
iron balustrades.

CURWEN:		Sue was there not just to see the sites but to meet payments chief, 
John Trundle.  He explained how the bank guards the security of what is a safe and 
reliable payments system and settles the final exchange of payments between banks 
whenever any money is transferred.  Could he give us any insights into how decisions are 
made among the club of big banks who run the system?

TRUNDLE:		There is a continual debate about what service the customers would 
want and what the banks collectively are prepared to provide.  The problem’s a collective 
problem. It’s what the banks can agree to do together and that means that they have to 
agree on the rules of the system and so the collective decision making requires a degree of 
co-operation and consensus inevitably amongst the banks.  I think an interesting feature to 
observe is that it moves in step changes.  You have relatively long periods of stability and 
then you get to a point where there is sufficient agreement that people need a different 
type of payment product.

CURWEN:		So do you think there will be another step change fairly soon?

TRUNDLE:		It is certainly an active discussion amongst the banks and the fact 
that technology is changing very fast means that the period between these step changes is 
getting shorter so over time there’s no doubt there will be changes in the payment 
mechanism.

CURWEN:		But when?  Despite the diplomatic language John Trundle had 
made it clear the banks have found it hard to reach a consensus about speeding up 
payments.  As a result change has been painfully slow.  The closest Sue was going to get 
to putting these issues directly to the big banks who control the payments network was to 
speak to the body which represents their interests.

We’re in a big square near Moorgate in the City of London. We’ve come to a large 
imposing building which is the home of the Association for Payment Clearing Services, 
better known as APACS.  Sue, this is the body which runs the UK’s payments systems.

CLAYTON:		Well I’ve had a really good couple of days and it seems to me that 
the buck stop here.  Now perhaps we’ll get some answers.

CURWEN:		There were lots of loose ends to be tied up, not forgetting that 
promised same day money transfer service.  So in we went to meet Richard Tyson-
Davies, the Head of Public Affairs at APACS.  Sue put it to him, why do electronic 
transfers and cheque clearing take so long?

TYSON-DAVIES:	We have long established, well developed, very secure, very 
reliable systems but they’re not that quick.

CURWEN:		Seventeen months ago you told money Box that you were going to 
develop a fast, new, same day payment system to be ready for mid 2001.  Where is it?

TYSON-DAVIES:	What happened was that this got pushed on to the back burner a 
few months ago.  We had a group who were working on this.  It would need significant 
investment so it’s gone to the back burner. It has not been taken off the cooker.  It’s still 
there and we are looking at other ways that we can deliver an enhanced service to 
customers like Sue. It may not be same day. It might be the next day rather than the same 
day.  Our difficulty is, what we’re struggling with across the industry at the moment is 
agreeing a time scale in which we make this work.

CURWEN:		So are you saying it’s the individual banks who are squabbling 
about this?

TYSON-DAVIES:	I wouldn’t say they’re squabbling, no. They’ve got genuine reasons 
why they’re not doing this and it’s certainly not for me to criticise them because we’re 
dealing with very substantial sums and investments involved here.

CURWEN:		But effectively the banks got cold feet because it would cost them 
too much?

TYSON-DAVIES:	True.

CLAYTON:		It sounds as if eventually things will be speeded up.  Have we any 
idea of the time schedule?

TYSON-DAVIES:	I honestly think you have to be looking at 2003 and I’d be not 
being straight with you but I think we’re looking at late 2002, early 2003 before 
significant change will be delivered.  It gives me pain that we weren’t able to deliver but 
that is the way it is.

CURWEN:		So the much vaunted new electronic transfer service might happen 
not in 2001 but in 2003 and what had been publicised as a same day service might in fact 
turn out to take two days.  Sue had more questions.  How much did the banks make in 
interest payments from their customers’ money while it’s trapped in electronic transit?

TYSON-DAVIES:	I don’t think the amounts of money they are potentially profiting 
here are significant enough to actually make much difference. It isn’t a sort of cash cow 
that they’re milking here.  It is very small amounts of benefit against very large sums of 
investments needed across the industry to develop a new payment system.

CURWEN:		Perhaps one of the most worrying prospects for APACS are the 
suggestions coming from government about changes in the way the payment system is 
run.  Sue was interested in the proposal that consumers may be allowed to have some say 
in how it works.  She was about to put Richard Tyson-Davies on the spot:

CLAYTON:		What representation is there for ordinary people like me to put 
their point of view.  Can I be on the board of APACS?

TYSON-DAVIES:	The government are very concerned that consumers should have 
more of a look in.  This is something we’re wrestling with at the moment whether there 
should be boards of consumers who advise or criticise.  It is something that is happening 
in other countries where there are representatives of consumers on similar bodies to ours.  
What has happened is these things end up as talking shops.  They don’t seem to make 
much progress, so we’re not keen on the idea, but the banks ask their customers more 
than they did in the past.  You’re not being ignored as maybe you were back in what I call 
the Captain Mannering branch era.  We’re getting much closer to our customers.

CURWEN:		We couldn’t help coming away with the impression that the 
payments industry is apprehensive about the prospect of being regulated.  Then, just a few 
days after we’d spoken to APACS, the government finally acted on the Cruickshank 
report into competition in banking and announced there will be a regulator of the 
payments industry – the Office of Fair Trading.  The government is planning to push 
through new laws which would stop the big banks operating what’s almost a closed shop 
and keeping out other potential competitors.  Sue wanted to find out what this would 
mean for her so we asked the government for an interview.  The Chief Secretary to the 
Treasury Andrew Smith agreed to meet us.  Once in the grand offices of state at the 
Treasury Sue asked him why the government is having to bring in new legislation?

SMITH:		There’s been a sort of institutional resistance to change.  There 
hasn’t been the innovation that you and I and ordinary customers would have expected.  
These payments services are run rather like clubs of the banks.  Some of the banks may 
want to move more quickly but they’ve only been able to move at the pace of the slowest 
and they don’t have the competitive stimulus that will force them to innovate and do 
things more quickly in order to win and attract customers.

CLAYTON:		But can you legislate to insist that there’s competition?

SMITH:		Yes you can through giving the powers which we’re 
recommending to the Office of Fair Trading, they would be able to uncover 
uncompetitive practices and they would be able to insist on the removal of any barriers to 
new entrants coming in and offering an improved service. And I think as we see in other 
areas of life where you open things up to competition then the customers’ needs assume 
greater importance.

CLAYTON:		So this legislation that you’re going to introduce will it make it 
quicker for me?  Will I notice a difference?

SMITH:		I believe you certainly will. It will make things very much quicker 
and it will make things cheaper as well – of course the proof of the pudding will be in the 
eating, and perhaps we ought to revisit this interview some little while after we’ve got our 
legislation in practice.

CURWEN:		Sue had reached the end of her journey. She’d now got a much 
clearer view of why paying her suppliers took so long, and the government had held out a 
promise of change.  I asked her for her final thoughts about what she’d learned and what 
she’d heard from the Chief Secretary to the Treasury?

CLAYTON:		It was encouraging to hear the fact that he did agree with me that 
change was long overdue and that the banks have got to shake up their act and improve 
on their services to customers. I came into this programme with a bee in my bonnet, and 
that bee is still buzzing around. What I want to know is when as a customer and as a 
small business, I want to know when these payment systems are going to be speeded up?  
When am I going to see the benefit of the legislation and when am I going to see results?

CURWEN:		After decades of running their own show the big banks and 
building societies are about to feel the cold winds of regulation.  The question of whether 
it takes one or three days to make a payment may sound fairly trivial, but the government 
has made it clear it doesn’t think so.  The payments system channels the very life blood of 
business and industry and if the blood pumps faster it’s better not just for individuals like 
Sue but for the whole economy.

PROGRAMME ENDS.

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