Reflecting on 2011 Annual Review Founded in 1968, Bacs, the not-for-profit, membership-based industry body, is owned by 16 of the leading banks and building societies in the UK, Europe and the 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 over 40 years.

1. Reflecting on 2011
annual review

2. Foreword
About us
Founded in 1968, Bacs, the not-for-profit, membership-based industry
body, is owned by 16 of the leading banks and building societies in the
UK, Europe and the 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 over 40 years.
2 Bacs annual review 2011 Bacs annual review 2011 3
Michael Chambers
Managing Director
Welcome to our annual review for
2011, in which we reflect on the work
we carried out throughout the year.
We have avoided dwelling on too much
detail and, instead, focused on trying to
give an accurate picture of the breadth
of our work – as with any successful
business, we find ourselves constantly
evolving and so the scope of our work
has changed immensely since I became
Managing Director in 2003.
As we are all aware, 2011 was another
challenging year economically, for the
country, its businesses and our population
as a whole. We’ve watched entire countries
struggle and have, as a nation, experienced
the governmental and personal belt
tightening which has also taken place
across the globe.
Consequently at Bacs we found that even
more UK businesses and consumers turned
to Direct Debit, the former to help with
cashflow and efficiencies and the latter
with budgeting and savings. Direct Debit
volumes increased, with more than three
and a quarter billion processed in 2011 –
that’s an estimated cost saving of £3.25
billion per annum to the economy over
traditional paper-based methods. Bacs
Direct Credit, used to pay many salaries
and wages, also increased in 2011 albeit it
at a slower rate, by 0.5%.
We reached a milestone of processing 90
billion transactions since Bacs launched in
1968, and we broke our own processing
record in September, with 91.9 million
transactions in a single day.
In 2011, we were involved in important
projects for account switching, cash
ISA transfers and HMRC’s Real Time
Information project. We also embraced
smartphone technology, creating our first
Direct Debit app for the iPhone.
We welcomed our first non-European
member with Citibank’s accession
successfully completing in November
2011, bringing membership up to 16 of
the leading financial institutions in the UK,
Europe and, now, the US.
I’m very proud to share our highlights
of 2011 with you, and I hope you will join
me in applauding the efforts of our small
but, as I hope you’ll agree, very effective
Bacs team.
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3. Our members
A membership organisation
Bacs has historically been owned by the
UK’s leading banks and building societies,
with membership extending out to Europe
and the US in more recent years.
We welcomed Citibank NA into the
scheme in 2011, taking the membership to
16. The accession successfully completed
in November.
The inclusion of Citibank demonstrates
Bacs’determination to evolve as a scheme
management company, and to keep
pace with the rapidly changing financial
landscape. Even with 16 members now
on board, Bacs remains open to new
membership from those financial institutions
which meet membership criteria.
• Allied Irish Bank
• Bank of England
• Barclays Bank
• Citibank NA
• Clydesdale
• Coutts & Co
• Danske Bank
• HBOS (Halifax and Bank of Scotland)
• HSBC Bank plc
• Lloyds TSB Bank
• Nationwide Building Society
• NatWest Bank
• Northern Rock
• Santander
• The Co-operative Bank
• The Royal Bank of Scotland
N.B. Coutts & Co, NatWest Bank and
The Royal Bank of Scotland are all part of
The Royal Group. Lloyds TSB Bank and HBOS
are part of the Lloyds Bank Banking 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.
The inclusion of Citibank as a member
demonstrates Bacs’ determination to
evolve as a scheme management company...
4 Bacs annual review 2011
Our Board
Our board is made up of representatives
of our member banks. In 2011, the board
comprised:
Chair:
Paul Gray - Co-operative Bank
Directors:
Joe McKnight - Allied Irish Bank
Joanna Place - Bank of England
Jon Maltman - Barclays Bank
Anupam Sinha - Citibank NA
Dave Sanders - Co-operative Bank
Andy McComb - Danske Bank
Caroline Tose - HSBC Bank plc
Anne Trolland - Lloyds Banking Group
Douglas Belmore - NAG
Mike Roberts - Nationwide Building Society
Jonathan Kennedy - Northern Rock
David Greig - Royal Bank of Scotland
Robert White - Santander
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.
Affiliates
Interests
Group
Our structure
Bacs annual review 2011 5
Committee structure
Ad hoc
Specialist
Committees
e.g. Appeals,
Disciplinary
Rules
Governance
Committee
Audit Risk
Committee
Operations
Compliance
Committee
Development
Committee
Security
Committee
Board
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4. In 2011 two new records were set:
In September a single day’s processing
reached 91,920,641 items, while in April
89,238 files were processed in one day.
6 Bacs annual review 2011
Performance overview
In 2011 alone, more than 5.7 billion UK
payments were sent through the Bacs
system with a value of more than £4.3
trillion. Two new records were also set
during the year: September broke the
2007 record for a single day’s processing,
reaching a total volume of 91,920,641
items, while in April a record-setting
89,238 files were processed in one day.
Against the challenging economic backdrop,
Direct Debits continued to grow, increasing
by 3% over 2011 to reach three and a
quarter billion Direct Debits processed in
2011. Usage of the payment method is high
­– nearly three quarters of UK adults have
at least one Direct Debit commitment.
In addition, our research shows that 78%
of the population has a positive disposition
towards Direct Debit, with preferers now at
an all time high of 64%.
Notable trends in key billing sectors
included continued growth in automated
payments within the mobile sector, whilst
the water sector also maintained an
upward trend in Direct Debit payments.
The latter reflected the success of our
collective marketing campaigns, one of
which was developed exclusively for the
water sector.
Also of note in 2011, a single service user
saw an astonishing increase in Direct Debit
volume of 28%, adding 25 million items
over the course of the year.
Again despite the economic
circumstances, Bacs Direct Credit volumes
also rose, with growth of 0.5% in 2011 –
that makes a total of 2.292 billion credits
throughout the year. Bacs Direct Credit is
the payment method of choice for many
UK employers, with 28 million people paid
wages and salaries this way, accounting for
around 90% of the UK workforce.
90.75 billion – number of Bacs transactions since 1968
91.9 million – record number of payments processed in a single day in 2011
£4.3 trillion – monetary value of Bacs payments processed in 2011
£3.25 billion – conservative cost saving estimate for British business using
Direct Debit over paper-based payment methods
28 million – number of people paid salaries or wages by Bacs Direct Credit
Our strategic goals for 2011
• Build upon operational excellence
• Further progress stakeholder requirements
• Strengthen industry relations
• Enhance corporate social responsibility agenda
• Pursue scheme management opportunities
Bacs processed its 90 billionth transaction in 2011 – that’s the total number of debits and credits
applied to UK bank accounts via Bacs since its inception in 1968.
Bacs annual review 2011 7
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5. Operational excellence remains
a core objective for Bacs. With the
company and its Schemes recognised
by the Government as being of critical
importance to the UK’s financial
systems, ensuring our service is robust
and reliable is central to our work.
Dave Stockwell
Senior Manager, Operations and Compliance
8 Bacs annual review 2011
Business continuity
market wide exercise
An exercise testing the financial sector’s
capacity to deal with operational
disruption was held in November, under
the leadership of the FSA, HM Treasury and
the Bank of England. The Bacs team was
fully involved in responding to the test
scenarios which ran over 12 hours, looking
at everything from operational and
management challenges to internal and
external communications. The protocols
we had already developed for dealing with
emergency situations worked extremely
well, allowing our staff to deal with this
exercise efficiently and effectively.
Bacs Direct Credit
Scheme Rules
The specialist working group which was
established in 2010 to take responsibility
for the first Bacs Direct Credit rulebook –
the rules were published at the end of that
year – maintained an active role into
2011. The group, made up of members of
the Rules Governance Committee and
representatives from the Affiliates Group
and the Bacs team, reviewed the rulebook
and proposed changes to the full Rules
Governance Committee. The revised
document was published at the end of
December 2011.
Direct Debit Indemnity
Scheme Automation
The automation of Indemnity Claim
processing concluded successfully in April
2011. The new system replaces expensive
and slow manual systems used between
banks and service users, reducing paper
flow and increasing efficiency for banks
while service users benefit from a reduced
administration burden.
Quality assurance
Operational excellence remains a key
driver for our team, and something which
is required of all of our suppliers. We have
demanding Service Level Agreements
(SLAs) with our infrastructure provider,
VocaLink , which were all met at the
highest of levels in 2011 – these SLAs are
the most demanding that Bacs has ever
set for VocaLink and the company still
exceeded performance requirements
every month in 2011. Similarly, our 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.
Highlights of our delivery
The Bacs team has a far-reaching remit, covering all of those areas which touch upon the Scheme;
they can range from projects led by Government or other third parties to our own very specific
goals and activities. Below is a selection of highlights from 2011, which gives a brief insight into the
work we get involved in on a day-to-day basis.
Bacs annual review 2011 9
Overall Performance of Bacs Service
ServicePerformance/Targets
Jan-11
Oct-11
July-11
Apr-11
99.927%
99.947%
99.910%
99.924%
99.876%
99.928%
99.943%
99.937%
99.953%
99.930%
99.888%
99.877%
Service Performance Stretch Target Target
%
99.0
99.5
100.0
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6. Stakeholder requirements
HMRC – RTI
2011 saw the commencement of the high
profile work on HMRC’s programme to
change the PAYE system, bringing Real
Time Information to the fore in a bid
to realise efficiencies in tax assessment
and collection. We worked closely with
HMRC throughout the year to develop a
solution which would fulfil government
objectives without affecting the integrity
of our system, or the quality of service
experienced by our users.
The result is an interim solution which
will be introduced on a pilot basis in April
2012, remaining in place until at least April
2014 - this is in recognition of the high
percentage of salary, wage and pension
payments which are made via Bacs Direct
Credit. Each Bacs payment file will carry
a unique code enabling HMRC to match
the payment with tax information sent
through existing government channels.
In the meantime, a long term solution
is being sought and we continue to
work with HMRC as that progresses.
As all payment methods will need to
accommodate the data requirement, this
new solution will be scheme agnostic.
However, given the widespread use of
Bacs Direct Credit, it is highly likely that
our scheme will be the primary channel
involved, not least as our system has
already been described by HMRC as
having a high degree of assurance and
identity assurance built in, and as a very
secure system.
Help Centre
The Direct Debit Help Centre remains a
useful resource, providing online guidance
for consumers experiencing any difficulties
– and 2011 saw more than 80,000 unique
visitors to the Help Centre pages.
As well as advice on setting up or
cancelling Direct Debits, information on
the Guarantee and also on switching bank
accounts, the pages contain template
letters for communicating to banks and
billing organisations. In the first 11 months
of 2011, these were downloaded almost
9,000 times.
Bacs has a unique position in the UK, reaching almost every individual and business at some
point. As a result, our stakeholders are both diverse and numerous. Along with consumers and
businesses of every size, Government as well as the financial industry and various regulatory
bodies all have touchpoints with Bacs. It is important that we continue to strive to meet the needs
of all of our stakeholders as they change and evolve.
Direct Debit
marketing resource
Our core stakeholders include
those businesses which utilise
Direct Debit to enjoy cost
efficiencies and predictability
in payment collection, while
providing their customers with an
option to spread commitments
rather than find a lump sum. As
the estimated saving for every
customer who converts to Direct
Debit from paper-based payments
stands at £10 per year, there is a
strong business case for driving
uptake of this payment method.
Bacs has a dedicated marketing
and volume generation team
which can tap into decades of
experience and best practice in
changing the way people pay.
The team provides free of charge
consultancy to major service users,
guiding marketing activities and
generating bespoke materials to
enhance Direct Debit adoption. In
addition, the team has produced
a library of resources for smaller
billers, all contained within our
website’s Marketing Centre
of Excellence.
10 Bacs annual review 2011
Collective marketing
We carried out two very successful
collective marketing initiatives in 2011
– the London Campaign, which built
on previous work with local authorities
in the capital, and Driving Donations,
which brought together billers across the
country. Both were developed to help
uplift Direct Debit volumes.
The London Campaign saw an increase
in Direct Debit conversion rates for
participating local authorities of between
4% and 1,917%, considerably exceeding
objectives of between 10% and 15%.
The overall cost savings to the
participating authorities reached
£345,000, with each council recouping
their investment after just 2.6 months.
With our Driving Donations campaign,
we combined raising money for charity
at the same time as promoting Direct
Debit conversion. The initiative included a
customer incentive in the form of a prize
draw for a new Renault Clio, participating
biller commitment to donate to charity
for each customer who converted, and
centrally generated marketing materials
and support.
The campaign was a resounding success,
raising over £150,000 for Marie Curie
Cancer Care’s Great Daffodil Appeal and
generating an additional two million new
items annually, with an estimated lifetime
value to billers of more than £10 million.
Driving Donations has also been
shortlisted for an award by the Chartered
Institute of Marketing. The campaign will
be judged against others in one of the
Financial Services categories in the 2011
Marketing Excellence Awards, with the
winner announced in February 2012.
iPhone App – the Direct Debit
Control Centre
Designed for consumers who like to be
in control of their finances with Direct
Debit, the Direct Debit Control Centre
iPhone App launched in April 2011.
The app enables bill payers to keep track
of Direct Debits leaving their accounts
by programming reminders of when
a bill payment is due to go out. It was
downloaded more than 20,000 times
in 2011, reaching a height of 5th in the
financial apps listing during launch,
and garnered a strong user rating in the
App Store.
Bacs Family Finance Tracker
Our Bacs Family Finance Tracker continued
in 2011, providing valuable insight into the
payment habits of UK consumers through
a rolling research programme which
questions almost 5,000 of the country’s
adults. The research also provides content
for media materials, helping to position
Bacs as an authority on UK payments.
Bacs annual review 2011 11
In 2011 we carried out two successful marketing
initiatives to help uplift Direct Debit volumes. The London
Campaign saw an increase in Direct Debit conversion rates
saving the 15 participating councils almost £350,000,
while the Driving Donations marketing campaign added
200,000 new Direct Debit instructions and raised over
£150,000 for Marie Curie Cancer Care.
Mike Hutchinson
Head of Marketing
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7. Important relationships
Industry relations
The financial industry remains a keen focus
of attention in the UK. With the economic
challenges still in evidence, it is important
that members of the sector work
together, and we are keen to reinforce our
relationships within the industry.
Institute of Credit
Management (ICM)
Our partnership with the ICM, the leading
professional body dealing with credit
management education, continued into
2011. We worked with the organisation to
develop a guide to automated payments
which was issued in April. Available on
the ICM’s website, the guide has been
downloaded more than 5,000 times by the
Institute’s members.
This relationship also helps us to highlight
the late payments culture in the UK,
which we have been researching and
monitoring for the past five years.
The activity enables us to encourage
businesses to consider moving to
automated payments wherever possible
to assist with cashflow, and provides an
opportunity for us to raise awareness of
the issue through media comment.
Bacs Approved
Bureau Scheme
Between them, members of the Bacs
Approved Bureau Scheme (BABS) are
responsible for almost 700 million
transactions with a combined value of
more than £800 billion. BABS members
can be found in Belfast, Elgin, Truro, Cardiff,
Carlisle, Guernsey, Norwich, Ramsgate,
Sheffield, Liverpool and everywhere
in between, providing UK companies
which do not submit directly to Bacs
with outstanding geographic access to
the service. The BABS inspection team is
tasked with ensuring the bureaux meet all
of Bacs’requirements, carrying out nearly
300 visits across the year.
Software supplier conference
Bacs hosted a software supplier seminar
in April 2011, bringing together senior
representatives from the Bacs Approved
Software Supplier (BASS) community for
the half day session. The event covered a
range of areas affecting BASS members,
from the introduction of HMRC’s Real
Time Information project to market
opportunities and business support.
BABS inspection review
The procedure is based broadly on
British Standard BS7799.
– Information Security Management
– intended for use as a reference
for those within an organisation
responsible for maintaining security
standards and implementing
procedures of good practice. Areas
of inspection include:
1. Organisation and Rule
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. Verification 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.
12 Bacs annual review 2011
Affiliates
We welcomed six new members into the
Bacs Affiliates Group in 2011. The group,
which includes current account providers,
agency banks and financial institutions,
service users, Bacs approved software
suppliers and Bacs bureaux service
providers, consults on areas such as
regulatory change, product development
and scheme initiatives.
Affiliates benefits 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 influence 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), efficiency/quality and
volume penetration
• Receiving briefings on forthcoming
regulatory change
• Receiving and debating research findings
• Having access to press releases and Bacs
marketing team collateral/resources.
Bacs annual review 2011 13
Corporate Social
Responsibility
We have a full corporate social
responsibility charter which outlines our
commitment to contribute to a better
society and demonstrates 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
CSR was also one of the key motivators
behind our Driving Donations collective
marketing campaign. The activity was
deliberately devised to intrinsically link
increasing Direct Debit adoption with
raising funds for our chosen charity Marie
Curie Cancer Care, and its Great Daffodil
Appeal. With three out of four people in
the UK affected by cancer at some point in
their lives, the charity resonates with many
people. The resulting £150,000 donated will
pay for 7,500 hours of nursing care for those
suffering from terminal cancer.
I wanted to say thank you again
for your support to date as it will help us
support more terminally ill patients and
their families. The promotion has been
hugely successful both from the amount
of funds and awareness raised.
Arun Sharma
Head of Corporate Fundraising, Marie Curie Cancer Care
Our CSR charter has a number of
commitments, including to:
1. Be professional, equitable and ethical
in all our dealings and relationships
2. Play our part in providing equal
access to financial products for all
3. Recognise the importance of
educating the next generation
on the principles of sound money
management and contribute towards
positive initiatives in this area
4. Pioneer and utilise new technologies
to minimise the impact of Bacs on
the environment
5. Safeguard the interests of our
stakeholders, service users and
consumers by practising excellence
in financial security
6. Make CSR a factor in our choice
of suppliers
7. Work to be a positive part of the
industry in which we operate.
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8. 14 Bacs annual review 2011
Account switching
Work on the account switching programme
began in 2010 and we continued to build
on this in 2011. Within the Payments
Council programme there are three
Bacs-led work streams – these will deliver
an enhanced messaging service and a
proposed central payment redirection
facility. It will also see Bacs play a
central role in managing stakeholder
improvements in 2012 as part of our
business as usual compliance activities, and
develop the governance around the new
service and the access/membership criteria.
The programme aims to deliver a clearer
customer proposition, consistency of
service and a guaranteed timeline for
anyone switching accounts. Also in 2012,
the focus will be on understanding what is
meant by success and how it will be used
to promote competition in the market.
There will no doubt be more on this in
next year’s report, as the planned launch
of the service is September 2013.
Cash ISA transfers
Based on existing Bacs services,
infrastructure and expertise we were
selected as the preferred supplier in the
British Bankers’Association (BBA) senior
retail committee Request For Information
for an automated Cash ISA Transfer service.
Subsequently the Cash ISA industry bodies
(BBA, the Building Societies Association
and the Tax Incentivised Savings
Association) asked Bacs to progress
business requirements to support an
electronic exchange of data between
cash ISA providers.
This is a substantial piece of work,
involving multiple parties, and our team
has led every aspect. Due to the hard work
of all involved, we are on schedule for a
successful delivery in October 2012.
Scheme management
Bacs annual review 2011 15
Much of our work in 2011 has been focused on these
two projects, which are among the payment industry’s
highest profile initiatives. We’re very pleased that we were
asked to take a substantial role in their development,
and the team is determined to ensure our input helps
to deliver a seamless service to consumers and industry
stakeholders alike.
Anne Pieckielon
Senior Manager, Schemes
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9. Contact information
2 Thomas More Square
London
E1W 1YN
0203 217 8379
Bacs service desk:
0870 165 0018
servicedesk@bacsservices.co.uk
Our websites
Corporate: bacs.co.uk
Consumer: thesmartwaytopay.co.uk
B2B: paymedirect.co.uk
Bacs is a registered trademark of Bacs Payment Schemes Limited.
The ownership of all other marks are hereby acknowledged.
©
Bacs Payment Schemes Limited 2011. All rights reserved.
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