The Bacs payment service is used for the processing of all UK direct debits and direct credits (primarily supplier payments, staff wages and salaries, pensions and benefits) and is therefore a key income mechanism for millions of businesses and households.

Right up until the end of December, press reports suggested that many thousands of companies throughout Britain were likely to miss the mandatory deadline for migrating from Bacstel to Bacstel-IP. Rumours circulated that with the end of the old Bacs submission system, many tens of thousands of people would find themselves being paid in January by cheque or even in cash.

The reality has proved less apocalyptic than some feared, but considerably more complex. Even companies that met the deadline may have reason to rethink their Bacstel-IP strategy during 2006.

Number crunching
At the end of November 2005 10,000 firms had not completed the migration project according to reports in the UK trade press. By 3 January that figure had come down to between 2500 - 5000 firms, according to Mike Hutchinson, Bacstel-IP marketing manager for Bacs.

Given a total user base of around 110,000 BACSTEL users, this estimate suggests a 97% success rate.

Even if there is doubt about the precise number of companies that have missed the deadline, there is no question that the Bacstel-IP migration programme was a great success. Bacstel-IP became a major project for organisations across the country, replacing established systems and processes that had worked effectively for up to two decades. It represented a huge upheaval with many related risks, which, when coupled with the fact that the vast majority of migrations took place in under two years, makes Bacstel-IP a huge achievement.

Migration strategies
At the outset of the migration programme it was assumed that most Originators would simply upgrade their Bacstel software with their incumbent supplier. For some this was not an option, as not all Bacstel software suppliers became approved suppliers of Bacstel-IP-compliant software. For these companies the migration process was inevitably a more drawn out process.

Other organisations took the opportunity presented by Bacstel-IP to review and rationalise their submission systems. This partly accounts for the uncertainty about the true number of companies that have failed to migrate, as many Service User Numbers will have become redundant during the review and rationalisation process.

Overall satisfaction with the Bacstel-IP service appears very high. Last summer, Bacs reported that 87% of customers were sufficiently satisfied to recommend Bacstel-IP to other businesses.

A different story is now emerging with regard to the approved Bacstel-IP software market. There are already signs of dissatisfaction amongst users with the performance and functional strengths of some of the software solutions available. A small but significant minority of companies, including a number of household names, realised in mid-migration that the decision to upgrade the software of their existing supplier was not the most effective way to optimise their use of Bacstel-IP. For some of these companies their decision to take a strategic view of Bacstel-IP has resulted in a switch of software supplier part way through the migration process.

New Year payroll
According to Bacs, 98% of the companies that have not yet migrated are small organisations using the clearing only for payroll purposes. So for employees of companies that have missed the deadline, what are the prospects of being paid on time in January?

Thousands of people are not about to face financial crises immediately after Christmas simply because their employer has failed to meet the migration deadline.

However, Bacs has kept to its word and turned off the old Bacstel submission system with effect from the first working day of the New Year. This means that any organisation trying to submit payment files to Bacs from 3 January using the old technology will find that their submission fails. Trying to use the old system for a month or two more is not an option.

Options
A number of options are open to organisations that have yet to migrate. Registering for Bacstel-IP with your bank remains the crucial first step whichever route you take.

• Select a Bacstel-IP solution that can migrate you within the timescale required of your next payroll run; this may be direct with an approved software supplier or via your bank
• Use a payroll bureaux or one of the specialist Bacstel-IP commercial bureaux
• Use your bank’s corporate banking solution

Each of these options will provide a short-term solution but may not provide you with the full benefits of Bacstel-IP.

The large number of companies trying to beat the end December deadline created enormous pressure on the banks, software providers and the Bacs service itself. For some software suppliers this pressure may be continuing as they rush to complete migration implementations. So in the short-term your choice of Bacstel-IP software may be restricted.

Using a bureau is a preferred submission process for some companies and is particularly attractive as a contingency solution. Some organisations that have missed the deadline may discover that a bureau contract works as a longterm solution. However, Bacstel-IP offers significant functionality improvements compared with Bacstel, in areas such as control, security, automation and reporting. It is questionable whether a payroll bureau is as attractive a solution as it used to be under Bacstel. In terms of cost per submission, a bureau contract may also be more expensive than running Bacstel-IP software internally.

Finally, using your bank’s corporate banking solution may appear as a simple solution to the problem. However, it is important to consider the strategic implications of being tied into your bank’s proprietary banking interface. Would this compromise your banking strategy over time? Also, it is important to remember that the banks’ solutions are designed for Originators with low volumes of payment submissions, operating manual processes.

Strategic review
Any of the above options will solve your payroll problems in the immediate future, but may not give you all the benefits you could enjoy of Bacstel-IP. With all of these options be cautious of viewing a short-term fix as a long-term solution.

Just as some companies took advantage of Bacstel-IP to undertake a strategic review as part of their migration strategy, others may find the New Year an appropriate time to start this review – without the pressure of an external deadline. This applies to every company that simply upgraded its software in order to migrate quickly as well as to those who are pursuing a short-term solution in order to process a few months’ payroll. It is important to separate the short-term challenge from the question of what your business needs are in the longer term.

Whatever the motivation for reviewing your Bacstel-IP software this year there are several issues worth considering.

Firstly, are there aspects of Bacstel-IP that your organisation could benefit from that you are not currently utilising? One area that companies may wish to consider is increased automation and, specifically, the implementation of Hardware Security Modules (HSMs). HSMs are the key to introducing the highest level of automation into your payment submission procedures whilst increasing overall security. Arguably more secure than Smartcards, correctly configured HSMs automate large parts of the submission process such as the download and distribution of reports, including to staff without logins to the Bacstel-IP service. HSMs are extremely useful for an organisation that submits payment files on a regular basis.

Another area of functionality that users might wish to consider is workflow. Except in the smallest organisations, a number of people are involved in the process of calculating wages and salaries, preparing and submitting the payment file to Bacs, receiving and analysing report data from Bacs and feeding corrected data back into the host application. By taking advantage of some of the more advanced Bacstel-IP software functionality that is available, many of these processes can be configured as workflow routes ensuring that the correct member of staff automatically receives notifications relevant to their role. This can be extended to include the automatic routing of data back into the host application removing the requirement for manual intervention completely.

Secondly, are you keeping abreast of the wider changes that are taking place within the payments industry? Multi-national companies or subsidiaries of multi-nationals might consider the wider payments landscape as part of their strategic review of Bacstel-IP. With moves towards Faster (same day) Payments in the UK, a Single Euro Payments Area (Sepa) in Europe, and a proposed New Legal Framework for payments (that should allow easier centralisation of European payroll), the payments marketplace is undergoing fundamental change. Part of this will see an opening up of the Automated Clearing House (ACH) market of which Bacs is a part. If your organisation operates on a global basis or has global aspirations then it may be in your best interests to select a Bacstel-IP software solution that has global ACH compliance as part of its own strategic roadmap.

Conclusion
The Bacstel-IP migration has been a tremendous success. But numerous companies have yet to be fully satisfied with their payment submission arrangements. In the rush to beat the deadline, some organisations have had to compromise on the level of sophistication of the payment systems and processes they have implemented. Others have yet to undertake a thorough review of their options in the light of everything that Bacstel-IP offers. A few thousand are now forced to rush through a migration process under the real commercial pressure to process their New Year payrolls.

During the heat of the migration campaign much was made of the range of efficiency improvements that were on offer with Bacstel-IP in areas such as automation, consolidation, effective electronic report handling and data validation. 2006 presents the opportunity for organisations that have not yet taken advantage of these innovations to reassess their value without a deadline putting pressure on the process.

The extent to which organisations will be able to capitalise on their investment in Bacstel-IP will be very much dependant on the chosen Bacstel-IP solution and its flexibility and scaleability to handle such advanced functionality, including HSMs. It may be that organisations will consider a further enhancement of their payment processes to enable them to reap the full potential of the new platform. This migration programme may have a lot of life left in it yet.