Banks to lose £30m in clearing change

Banks are likely to lose £30m in annual profits when they move to clearing electronic money transfers on the same day, under proposals to be unveiled next week.

Banks are likely to lose £30m in annual profits when they move to clearing electronic money transfers on the same day, under proposals to be unveiled next week.

Electronic clearing covers standing orders and payments made over the internet and the telephone. The money could, in theory, be credited virtually instantaneously. However, because the system is treated like cheque clearing, it takes two days before the money arrives in the recipient's account, even though it leaves the payer's account as soon as the payment is made. During that clearing period the banks are able to lend out the money and earn interest. HSBC recently announced it would pay the interest back to its customers.

A payments task force was set up in April last year to speed up the clearing system and will, in its first annual report next week, propose a move to same-day clearing for most electronic payments. If a payment comes late in the day, it will be cleared the next day.

The task force, which is chaired by the Office of Fair Trading and includes the banks, clearing and consumer organisations, will report on various technical ways of achieving the change.

The UK's payments system was heavily criticised by Don Cruickshank, a former chairman of the London Stock Exchange, in his Treasury-commissioned review of the banking industry five years ago.