bacs annual review 2012

Sustaining growth in 2012 Annual Review

1 Bacs annual review 2012

Bacs, the not-for-profi t, membership-based industry body, is owned by 16 of the leading banks and building societies in the UK, Europe and US. Responsible for the Schemes behind the clearing and settlement of automated payments in the UK including Direct Debit and Bacs Direct Credit, Bacs has been maintaining the integrity of payment related services for 44 years.

Bacs annual review 2012 2

Foreword

Welcome to our review of 2012 – the year was certainly a very busy one for the team at Bacs, and we’re pleased to share with you some of the highlights.

As ever, we’ll be focusing on key pieces of work rather than taking you through all of our “business as usual” activity.

The economic and fi nancial sector challenges continued although I’m happy to report that Bacs has enjoyed another successful year.

We broke another processing record at the end of 2012, reaching more than 97 million transactions in a single day, saw a level of growth in Direct Debit volumes that we haven’t experienced in the last fi ve years – an annual increase of 3.2 per cent is very healthy – and we have been engaged with the wider industry in some very high profi le projects which sit outside our normal business.

While the Bacs Direct Credit side of our business did fall very slightly, this was something which had been anticipated due to the migration of Standing Orders to the Faster Payments Scheme. In any case, the increase in Direct Debit volumes almost completely compensated for that. It seems, despite all of the new and varied payment options now on off er to consumers and businesses, Direct Debit is as relevant as ever, with a big role to play.

In addition, we were briefed by the BBA, BSA and TISA to deliver a Cash ISA Transfer Service, which we launched successfully in October, and we have been heavily involved in development of the new Account Switching Service, scheduled for launch in September 2013. We also continued to work with HMRC on the very high profi le Real Time Information initiative. We weathered the challenges of the Olympics extremely well, despite the Games being held in our own backyard – it gave us an opportunity to put our remote working systems to the test, and they operated perfectly. And we’re also very proud that we raised £135,000 for a range of charities with our Big Break campaign, which brought in over 2m new transactions a year with a lifetime value of just under £10m to the participating billers. In addition, we are very proud to announce that, in 2012, we became a carbon neutral company, something we intend to build on still further in 2013.

All in all, it’s been an exciting year, and the team has worked extremely hard to deliver a wide range of projects on top of our normal day-to-day business running the two Schemes. I am extremely proud of all of their achievements. There is, of course, lots to come in 2013 and I look forward to sharing more with you then.

Michael ChambersManaging Director


Our members

Bacs is owned by leading banks and building societies in the UK, Europe and the United States of America, with current membership standing at 16. The range and national origins of our members reflects the now diverse financial landscape in the UK’s banking sector.

As a company which has stood the test of time, with more than four decades as an integral part of the nation’s critical financial infrastructure, Bacs has long recognised the importance of keeping pace with the ongoing evolution of the high profile financial sector. As such, the company remains keen to welcome new members which meet membership criteria.

Our BoardOur board is made up of representatives of our member banks and, in 2012, the board comprised:

Managing Director:Michael Chambers Bacs Payment Schemes Ltd

Chair:To be announced

Deputy Chair:Mike RobertsNationwide

Directors:Joe McKnightAllied Irish Bank

Matthew HuntBank of England

Jon MaltmanBarclays Bank

Anupam SinhaCitibank NADave SandersCo-operative Bank

Andy McCombDanske Bank

Martin ClarkHSBC

Anne TrollandLloyds Banking Group

Douglas BelmoreClydesdale Bank Plc

Mike RobertsNationwide

David GreigRoyal Bank of Scotland

Robert WhiteSantander

Gordon SoutarVirgin Money

Our committees:Four main committees report in to Bacs’ board. These are:

Rules and Governance

Audit and Risk

Operations and Compliance

Development Committee

There is a specialist Security Committee which reports to Audit & Risk and we also have a specialist Affiliates Interest Group.

Our members have a number of roles and responsibilities – they all:

• Settle at the Bank of England • Underwrite the Direct Debit Guarantee • Guarantee Bacs (Bacs Payment Schemes Limited is a company limited by guarantee) • Fund Bacs • Underwrite all risks incurred via Bacs • Direct Bacs and determine its plans • Use Bacs to support their customer propositions.

Membership details are available on the Bacs website: www.bacs.co.uk/Bacs/Corporate/JoinBacs/Pages/BacsMember

2012 members• Allied Irish Bank • Bank of England • Barclays Bank • Citibank NA• Coutts & Co • Clydesdale Bank Plc• Danske Bank • HBOS (Halifax and Bank of Scotland)• HSBC Bank plc • Lloyds TSB Bank • Nationwide Building Society • NatWest • Santander • The Co-operative Bank • The Royal Bank of Scotland • Virgin Money

N.B. Coutts, NatWest and The Royal Bank of Scotland are all part of The Royal Group. Lloyds and HBoS are part of Lloyds Banking Group.


Bacs and the UK payments industry

• The UK Cards Association (UKCA) is the leading trade organisation for the cards payment industry in the UK

• Its membership includes all major credit, debit and charge card issuers, and merchant acquiring banks

• UKCA contributes to the development of legislative and regulatory frameworks, and industry best practice and standards; safeguards the integrity of card payments; and co-ordinates relevant industry-wide initiatives

The Payments Council was established in March 2007 to ensure that UK Payments systems and services meet the needs of users, payments service providers and the wider economy. The Payments Council works closely with a number of contracted schemes for the benefi t of the UK payments industry

• Bacs is the not-for-profi t, membership based, industry body responsible for managing Direct Debit and Bacs Direct Credit

• Bacs is owned by 16 of the leading banks and building societies in the UK, Europe and the US

• In 2012 over 5.66 billion UK payments were made through Bacs with a total value of £4.15 trillion

• A new record was also set in 2012, with 97.6 million items processed in a single day with a value of £23 billion.

• Faster Payments was launched under the auspices of CHAPS Co on 27 May 2008, and Faster Payments Scheme Limited was formally incorporated on 24 August 2011

• Faster Payments has 10 members; the service enables immediate internet and phone payments 24 hours a day and also processes standing orders

• Since the service launched more than one billion transactions have been processed to a value of £462bn

• CHAPS Co processes and settles systemically important and time-dependent payments through its CHAPS Sterling payment scheme

• CHAPS membership is made up of 19 leading banks and building societies in the UK, Europe and the US

• A CHAPS payment is an electronic bank-to-bank same-day value payment made within the UK in sterling, generally used for high-value interbank transactions

• The Cheque and Credit Clearing Company (C&CCC) is a membership-based industry body with 11 settlement members. It manages the cheque clearing system in Great Britain

• Members of C&CCC are individually responsible for processing cheques to the accounts of their customers

• The C&CCC also processes bankers’ drafts, building society cheques, postal orders, warrants and Government payable orders. This includes management of the systems for clearing paper bank giro credits and euro-denominated cheques

Bacs is an integral part of the wider industry supporting UK payments of all types.

• LINK cash withdrawals can exceed £10 billion per month in value and at its busiest, LINK processes over 1 million transactions an hour.

• The number of cash machines in the UK has grown from 36,000 in 2001 to around 65,500 today.

• The number of free-to-use ATMs is at an all-time high of over 42,500.


2012 saw Direct Debit volumes increase by 3.2 per cent over 2011, reaching almost 3.43 billion transactions.


The payments landscape has moved faster over the past decade or so than it had previously for centuries – internet banking, Faster Payments, contactless cards, mobile wallets and apps are all relatively new arrivals when it comes to payment options.

But, while all of this high profi le innovation has been taking place, Direct Debit – introduced more than 40 years ago – has continued to perform effi ciently and securely in the background.

Direct Debit was the very fi rst automated digital payment option available to UK bill payers and billing companies. Today, it is more relevant, more popular and more convenient than ever before, as evidenced by its continued growth – 2012 saw Direct Debit volumes increase by 3.2 per cent over 2011, reaching almost 3.43 billion transactions. Three quarters of the UK adult population

have at least one Direct Debit commitment; most are for regular bills – in fact, research shows that 72 per cent of household bills are paid by Direct Debit. And it’s the way most consumers want to pay; 64 per cent of people prefer to pay most bills by Direct Debit while 39 per cent would like to pay all of their bills this way.

By contrast, Bacs Direct Credit volumes have fallen slightly but this was not unexpected, as Standing Orders moved under the remit of Faster Payments.

All in all, we saw more than 5.66 billion UK payments made through the Bacs system in 2012, and we broke yet another record in November when an impressive 97.6 million items were processed on a single day – that’s an increase of almost six million over the record set previously, in 2011, for 91.9 million items.

Performance overview

3.43 billion number of Direct Debits in 2012

97.6 million record number of payments processed in a single day in 2012: 97.6 million; value £23 bn

£3.5 billion conservative annual cost saving estimate for UK business using Direct Debit over paper-based collection methods

64% of people prefer to pay most bills by Direct Debit while 39 per cent would like to pay all of their bills this way.

Bacs is on track to process its 100 billionth transaction during 2013 – that’s the total number of debits and credits applied to UK bank accounts via Bacs since its inception in 1968


We touch the lives of millions of UK individuals and thousands of businesses, through our Direct Debit and Bacs Direct Credit products


Delivering against our strategic goals

Our small but very busy team is involved in a raft of activities, far broader than most may suspect. Our stakeholders are many, ranging from bill payers to billers, banks, businesses, fi nancial bodies and government.

We touch the lives of millions of UK individuals and thousands of businesses, through our Direct Debit and Bacs Direct Credit products – not many brands can be con� dent that at least three quarters of the adult population will use one of their products. But, in addition to managing our popular and wide-reaching Schemes, we are also involved in a number of high pro� le industry initiatives. Here, we’ve outlined for you just some of the work carried out in 2012.

Quality assurance The demanding Service Level Agreements (SLAs) we have in place with our infrastructure provider, VocaLink, were all met at the highest of levels in 2012. Similarly the banks’ Trust Provider performance also reached a near-perfect performance against its SLAs. We continue to monitor to ensure these levels are maintained to provide an exemplary service to all of our users.

London 2012With Bacs’ head offi ce close to the Olympic Park, it was important to consider the potential impact of the Games on our business practices and our people. We worked with our infrastructure provider to assess our existing robust processes and emergency planning against possible issues arising because of the Olympics, and put into place fully tested alternative remote working options for our team to ensure business continued to run smoothly during that period. We were also involved in the Payments Council-led cross-industry Olympics Communications Group.

Operational excellence


Stakeholder requirements

HMRC – RTIChanges to the PAYE system were piloted in 2012 as the first stage of HMRC’s Real Time Information (RTI) programme – aimed at realising efficiencies in tax assessment and collection, and in ensuring the correct level of Universal Credit – was implemented.

As the new system involves tax information being cross-matched with salary and wage payments, the bulk of which are payments made through Bacs Direct Credit, we have been closely involved in the work throughout the piece. At all times, we have remained steadfast in our determination to protect the integrity of our system, and the quality of service experienced by our users, a position which has been fully supported by HMRC.

The current RTI solution in the pilot scheme, while Bacs-specific, has a minimal impact on the Scheme. The payment file simply carries a code enabling HMRC to match the payment with tax information sent through existing Government channels. The longer term strategic solution has not yet been announced but we understand this will be scheme agnostic to ensure all relevant payment methods can accommodate the HMRC requirement.

Account switchingWith the new account switching service launching in September 2013, Bacs continued to work closely with the Payments Council and member banks on the development and implementation of the programme throughout 2012. Areas led by Bacs included work on delivering an enhanced messaging service and a central payment redirection facility, managing stakeholder improvements, and development of governance and access/membership criteria.

The programme aims to deliver a clearer customer proposition, consistency of service and a guaranteed timeline for anyone switching accounts.

We look forward to bringing you more on this in next year’s report, when Bacs will have taken on responsibility for the live service.

£20 million value cap2012 saw the introduction of a value cap to prevent payments of more than £20 million being submitted for processing through the Bacs system. With the system designed to process a high volume of payments of relatively low value, members of the Schemes and our overseer, the Bank of England, agreed that high value payments should be processed via CHAPS rather than Bacs.

The cap was introduced in May, and banks worked with affected customers to ensure systems were in place to migrate current and future transactions in excess of £20 million to the CHAPS system. The final stage was implemented on 22 October 2012 where we set up system validation to enforce the rule change – this means that any customer grade transaction above £20 million is now rejected automatically with advice to the submitter so they can arrange for the payment to be made via another method.

Impact on our service users is minimal as, out of the 5.5 billion payments processed by Bacs each year, only around 2,000 are above £20 million in value.

CPSS/IOSCO principlesThe Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) published new principles for Financial Market Infrastructures (FMIs) in early 2012.

The latest principles built upon those already in place, against which we already had a good level of compliance.

Northern IrelandJust under 1,000 businesses from all sectors were invited to a free breakfast briefing in Belfast, held in conjunction with Bacs’ Member banks based in the Province, where the latest Bacs developments were shared.

Over breakfast in the iconic newly opened Titanic Belfast on the slipways where RMS Titanic was built, we provided an outline of key industry projects and how they impact service users. This included HMRC RTI, the introduction of value caps and Account Switching as well as talking about best practice in the day to day running of a Bacs process.

We also gave an overview of the Direct Debit consumer marketplace in Northern Ireland, and the tools and support, which are freely available to help service users take advantage of Direct Debits.


Volume generation Our dedicated marketing and volume generation team continued to work with core stakeholders looking to make more use of Direct Debit payments within their business. Typically, a biller can make a saving of approximately £10 per year for every customer who switches to monthly automated payment from a paper-based payment, which provides a very strong business case for increasing Direct Debit adoption. The team provides free of charge consultancy to major service users, guiding marketing activities and generating bespoke materials to enhance Direct Debit adoption. They provide advice on audiences most likely to be open to switching to Direct Debit, drawn from our extensive market research programme. There is also a library of resources available to smaller billers within our website’s Marketing Centre of Excellence.

Collective marketingDrawing on the success of our 2011 collective marketing initiatives, we carried out three collective marketing initiatives in 2012. The London Campaign built on previous work with local authorities in the capital, several water companies joined forces for our second campaign in their sector while The Big Break brought together billers across the country from different sectors. All were developed with the clear objective of uplifting Direct Debit volumes.

The Big Break campaign brought together 29 supporters across energy, water, local authority, insurance and housing sectors. The campaign was the driver behind over two million new transactions per year with a lifetime value of £9.89 million to participating billers. In addition, we raised more than £135,000 for charities across the country. The campaign also enabled us to strengthen links with one of our key national media titles, with positive coverage and messaging appearing monthly. The total PR reach was 185 million, equating to every UK adult having been exposed to the campaign via the media three to four times over the course of the year.

Seventeen London local authorities tookpart in the 2012 London Campaign, whichsaw just short of a million people mailedand an increase of between 1.3 per cent and9.5 per cent in Direct Debit uptake amongthe participating LAs. Almost 380,000 newtransactions per annum were generated,equating to a cost saving of £362,000 acrossall the councils involved. The initiative alsonetted positive PR coverage for Direct Debitin the capital, with more than 56 articlesappearing throughout the campaign.

We also developed a campaign specificallyfor the water sector, with three watercompanies taking part. The campaign did notcomplete until the very end of 2012, so resultswere not available at the time of writing butinitial reports from the participants were very positive.

iPhone and Android AppsOur free iPhone app, the Direct Debit Control Centre, which launched in 2011, has proved a resounding success – the app works by programming reminders of when a bill payment is due to go out, allowing users to keep track of their Direct Debits. To date, it’s been downloaded over 28,000 times.

Building on that success, an Android version was developed in 2012 to extend availability to a wider section of the bill-paying population. The app launched at the end of 2012, so we look forward to reporting on its success in next year’s corporate report.

Bacs Family Finance Tracker Our regular consumer research continued across 2012 with the Bacs Family Finance Tracker providing valuable insight into UK payment habits. The survey has been quoted in high profile publications, including the money pages of national newspapers and websites. In addition, the volume generation team shares the information with key billers to help them understand more about attitudes to bills, Direct Debit and payments generally.

Help CentreThe Direct Debit Help Centre is still proving a useful online resource as a first port of call for consumers with any questions about Direct Debit or who are looking for assistance.

The pages contain advice on setting up or cancelling Direct Debits, as well as information on the Guarantee; there are also template letters for customers to use should they experience a problem or if they want to cancel a Direct Debit, and these were downloaded almost 7,000 times in 2012.

new transactions per annum generated by Big Break campaign

2.06m

number of downloads of our free iPhone app since launch

28,000+

help centre downloads during 2012

7,000


Industry relations

Affi liatesDuring 2012, the Bacs Affi liates Interest Group took on a new name as it extended its scope to cover the wider payments industry – the new Electronic Payment Affi liates Interest Group now also includes both CHAPS and Faster Payments, as well as Bacs.

The group will continue to consult on areas such as regulatory change, product development and Scheme initiatives – and we have welcomed the opportunity to now be able to provide a broader view across the wider electronic payments environment.

We ended 2012 with 45 organisations in the Affi liates Interest Group ranging from agency banks and fi nancial institutions, service users, Bacs approved software suppliers and Bacs approved bureaux. It’s important for us to ensure these members feel they are getting value out of the Group and, as such, we asked them to complete a satisfaction survey in 2012 – we’re pleased to report that 100 per cent of the respondents said they were satisfi ed with the current forum.

Affi liates benefi ts include:

• Receiving information and updates about Bacs’ products and, where appropriate, the wider payments market

• Having an opportunity to input into topical debates

• Receiving advance details and having the chance to infl uence and discuss the impacts of Scheme developments, innovations and new products

• Networking with other stakeholders in the Bacs process

• Seeking ways to improve the Bacs proposition through Straight Through Payments (STP), effi ciency/quality and volume penetration

• Receiving briefi ngs on forthcoming regulatory change

• Receiving and debating research fi ndings

• Having access to press releases and Bacs marketing team collateral/resources


Industry relations

Bacs Approved Software SuppliersThe Bacs approved software programme helps solution suppliers work to a set of business and technical standards to assist development of the software which interfaces with Bacstel-IP – any supplier developing, promoting and maintaining Bacstel-IP software packages is required to become a Bacs Approved Software Supplier.

All software packages produced by Bacs Approved Software Suppliers undergo mandatory testing by Bacs, with staff required to undertake appropriate training covering Bacs and Bacstel-IP. Solution suppliers successfully achieving approval – currently there are 19 – can display the Bacs Approved Software Supplier logo.

Bacs Approved Bureaux Service There are more than 760 bureaux included within the Bacs Approved Bureaux Service (BABS) which, together, accounted for over 700 million transactions in 2012 with a combined value of almost £800 billion. The bureaux enable thousands of businesses to access both Bacs Schemes, and span the UK and beyond, and yet more are applying to join BABS – there were more than 50 new applicants in 2012. It falls to the BABS inspection team to ensure each bureau continues to meet all Bacs’ requirements, with the inspectors carrying out just short of 300 visits across the year.

Bacs Training Accreditation SchemeOur Bacs Training Accreditation Scheme (BTAS) enables providers of Bacs-related training to apply to have their courses accredited, ensuring course content is up-to-date and relevant to user needs. To date, there are four companies off ering BTAS courses, assisting billers in gaining business benefi ts, generating lasting improvements in fi nancial performance, and investing in and motivating staff .

Cross industry workingOur role in a number of high profi le initiatives has involved working closely with other payments industry organisations, both in leading and supporting roles.

We were – and still are – active in the various workstreams which are part of the Account Switching programme, which will be delivered in September 2013; we worked with the BBA, BSA and TISA on the Cash ISA Transfer Service, introduced in October; and we were also wrapped in to the industry’s Olympic Communications Group, which was set up to ensure clarity and consistency of messaging around any impact of the London 2012 Games.

BABS inspection reviewThe procedure is based broadly on British Standard BS7799

Areas of inspection include:

1. Organisation and rules

2. Financial Information

3. Commercial Arrangements

4. Professional Services

5. Physical Security

6. Computer Facilities and Networks

7. Logical Access Control

8. Computer Operations

9. Business Continuity

10. Application and Systems Support

11. Customer Data Controls

12. Production of Bacs Data

13. Bacstel-IP Transmission Controls

14. Hardware Security Module (HSM) Option

15. Verifi cation of Bacs Processing

Further inspections are undertaken at three yearly intervals, or when major organisational changes occur and follow the same format.

Bacs Guideline “The Inspection Process” is available at www.bacs.co.uk to download.


Cash ISA Transfer ServiceThe new automated Cash ISA Transfer Service was launched on 22 October as part of a phased introduction, with 20 members in place from day one. All providers scheduled to off er the new service between launch and 31 January 2013 were on target to do so at the time of writing this report.

The new service will enable an increase in the quality and ease of transfer compared to the existing Cash ISA transfer process, reducing paper fl ow and increasing effi ciency.

The Bacs team was tasked by the Cash ISA industry bodies – the British Bankers’ Association, the Building Societies Association and the Tax Incentivised Savings Association – to lead on delivering the business requirements behind an exchange of data between cash ISA providers.

This substantial piece of work involved multiple parties, and we are pleased to report on its successful delivery.

Scheme management


Scheme management

During 2012, Bacs strengthened its environmental commitment by becoming a carbon neutral company. We achieved this in conjunction with leading carbon management and sustainability organisation, Carbon Footprint Ltd.

The project involved us undertaking an assessment of the carbon emissions that resulted from the energy consumption of Bacs processing (by our infrastructure provider) and all business transport activities associated with Bacs as an organisation for the year 2011. In order to achieve ‘carbon neutrality’ as an organisation, we undertook a subsequent carbon off set programme through Verifi ed Carbon Standard (VCS) projects.

The VCS project chosen for this off set is a Biomass Power Generation Project in Sri Lanka. This aims to provide a solution for the severe power shortage in the country through generating power using sustainable biomass sources instead of fossil fuels.

Additionally, Bacs has demonstrated its commitment to the UK environment by off setting a portion of its energy consumption with the planting of more than 400 new trees in the UK. This programme forms part of an overall carbon reduction management plan, whereby processes and technological changes are reviewed and behavioural changes are introduced through communication, training and awareness. We are proud to be a carbon neutral organisation.

We remain committed to our corporate social responsibility, and our charter outlines our promise to contribute to a better society, demonstrating how we are integrating environmental and social concerns into our business strategies and operations. Our charter can be found on our website: www.bacs.co.uk/csr

The Big BreakIn 2012, we ran another collective marketing campaign linked with generating donations to charity as part of our CSR programme. Building on our success in 2011, The Big Break tied increasing Direct Debit adoption with raising funds for charity – and 15 charities benefi ted as a result. In total, we’ve raised almost £300,000 in the last two years and we plan to develop this still further in 2013, generating even more donations and driving volumes at the same time.

Corporate Social Responsibility

Staff retention and developmentEvery year we participate in the UK Payments Administration (UKPA) ‘Best Companies Survey’ which looks at the top places to work according to staff feedback. Despite our excellent scores for 2011, we committed to establishing a plan to achieve better results – and we’re pleased to report on our success.

The results released in the closing stages of 2012 show that we have continued to improve in every single area.

Key highlightsBacs (equivalent) Best Company rating: 2* and on the cusp of the highest rating of 3*·

Bacs scores have risen on each of the eight factors considered by the survey comparing favourably with the already excellent Bacs result released in 2011. We aim to better this still further for our team for next year - given that Bacs is on the cusp of the highest (3*) rating from the Best Companies Survey our plan will be to achieve this highest accolade.

Bacs and Bacstel-IP are registered trademarks of Bacs Payment Schemes Limited.The ownership of all other marks are hereby acknowledged. ©Bacs Payment Schemes Limited 2013. All rights reserved.

This report is printed on paper sourced from sustainable resources that are elemental chlorine free (ECF)

Contact information2 Thomas More SquareLondonE1W 1YN

0203 217 8379

Bacs service desk: 0870 165 [email protected]

Our websitesCorporate: bacs.co.ukConsumer: directdebit.co.ukB2B: paymedirect.co.uk

bacs annual review 2012

Economy & Finance