How UK businesses can mitigate costly errors and fraud with Bacs
Liz Carroll, Senior Product Manager, Financial Marketplaces at Finastra
We’ve witnessed significant growth in payment volumes in the last 20 years, driven by a variety of factors such as fintech-led innovation, increased speed and efficiency of services, economic growth and increasingly complex supply chains. In fact, data from UK Finance shows that the total number of payments made in the UK increased from 40.4 billion in 2021 to 45.7 billion in 2022, and this growth is expected to continue.
One payment method that remains popular in the UK today, following its launch over half a century ago, is Bacs. 4.7 billion payments were made by Direct Debit in 2022 – with an overall value of £1,331 billion – and this is expected to increase to 5 billion by 2032. Direct Credit was the second most frequently used method by businesses in 2022, with 32% of payments made this way. This volume is expected to remain stable in 2032.
Bacs continues to be trusted by businesses due to the convenience and security it offers. By automating recurring payments with Direct Debit, firms and their customers gain peace of mind knowing that bills will be paid on time. With Direct Credit, the most popular way to pay wages and salaries, employers can streamline payroll processes and deliver funds to their employees automatically.
As payment volumes increase, so do potential risks
The benefits of Bacs are well-known. Yet, as payment volumes rise, so does the risk of increased errors and fraud. Through human error, for example, funds may be misdirected when customers provide their details to set up a payment instruction. Businesses must then contact the customer to manually correct instructions at the point of failure, causing delays and increased operational costs.
Finastra Bacsactive-IP is a feature-rich solution that enables businesses of all sizes to manage their payments.
The additional resources required from the company to resolve errors and chase missed payments can be costly and cause reputational damage. Additionally, the experience is painful and full of friction for the customer. When the demand for quick and seamless services has never been higher, this can potentially damage customer confidence and retention.
Bacs Debit and Credit failures are painful for customers and providers alike. Credit payments are also susceptible to Authorised Push Payment (APP) fraud. UK Finance reported a substantial rise in APP fraud from 2022-2023 via Bacs, with volumes rising 41% in H1 2023 and amounting to £13.2 million (up 6% from 2022). In a challenging economic climate where businesses face increased pressures to grow while keeping costs down, financial losses due to errors and fraud can have a severe impact.
Protecting businesses with Confirmation of Payee
Confirmation of Payee (CoP) and Payer Name Verification (PNV), launched by Pay.UK, emerged in 2019 and 2023 respectively to help users verify that they are sending payments to, or collecting money from, the correct account holder via their bank. The services provide peace of mind when making high-risk, high-volume or high-value transactions. CoP works by performing a real-time check with the bank of the account holder, verifying that the account details provided are correct, that the account exists and that it belongs to the name provided.
By checking that the data is correct when payers give their payment details to a call centre or on a website, the service gives businesses an opportunity to prompt for the right details in real-time. Payment timescales, manual interventions and indemnity claims are subsequently reduced, resulting in cost savings and better user experiences. Direct Credit users can also significantly reduce the risk of APP fraud.
Finastra Bacsactive-IP is a feature-rich solution that enables businesses of all sizes to manage their payments. The comprehensive payments suite offers Bacs Direct Credit and Direct Debit payment processing, including payroll, supplier payments, expenses, dividend payments, subscriptions, bill payments, memberships and more.
Bacsactive IP Customers can now benefit from PayPoint’s(1) CoP solution via their existing integrations. By holding an account with PayPoint, new customers wanting a single, managed API to validate name, address, and bank details before making a payment can now benefit from this strategic partnership.
The Bacsactive-IP solution is available via four distinct channels: an Open API module facilitating integration into client systems and websites; when processing payment files prior to sending to Bacs; when adding and editing accounts entered in Bacsactive-IP; and a standalone validation for ad hoc checks, bolstering the overall integrity of financial activities. The solution taps into Finastra’s open payments ecosystem to manage real-time checks with the account holding banks via an accredited direct participant to the CoP/PNV Pay.UK Service. This open finance approach is empowering communities and democratising payments.
Financial, legal and reputational damage can have a detrimental impact on businesses. As volumes of payments and fraud continue to grow, CoP and PNV are helping to protect businesses in the UK that use Bacs – as well as other payment methods – while ensuring their customers receive the seamless experiences they expect.
To find out more about Finastra Bacsactive-IP’s solution and how to benefit from Pay.UK’s Confirmation of Payee and Payer Name Verification services, click here.
(1) PayPoint is PayPoint Payment Services Limited an authorised payment institution regulated by the Financial Conduct Authority FRN 608227 and a participant in Pay.UK CoP services.