Bank giro credits (BGCs) are used by customers to pay cash or cheques into a bank account. They are commonly found in the form of tear-off strips at the bottom of utility, telephone and other regular bills. A bank giro credit is basically a paper slip addressed to a bank branch instructing it to credit a specified sum of money to a named account at that branch. It bears the money mark logo next to the words “bank giro credit”.
A bank giro credit is not a payment instrument, i.e. it cannot be used on its own to make a payment, and must be accompanied by cash and/or cheque – so the use of bank giro credits tends to follow any trends in the use of cheques and cash as a method of payment.
Customers can use a bank giro credit to pay a bill in two ways: by post with a cheque or over a branch counter of their own bank with a cheque or cash.
Bank giro credits can also be found in the back of chequebooks and are used by customers to pay cash or cheques into their own bank accounts. In addition, they are used by banks to collect donations for charity appeals such as Children in Need. A joint giro credit is one that has been issued by a biller and it can be used to pay a bill either at a bank, in which case it will be cleared through the inter-bank credit clearing, or at a branch of the Post Office. Like a BGC, it must be accompanied by cash or cheque. The joint giro credit is addressed to Santander (UK) plc and has the words “TRANSCASH” printed on it, as well as the words “bank giro credit” and the money mark logo. As of 2018, joint giros are being phased out as Santander does not offer new joint giro accounts any longer. Any institution now wishing to use the Post Office as a bill paying facility has to include a bar code on either the statement or the BGC itself. As a result there is no need for the joint giro code line, Post Office bill payments are now automated at the counter. It is the responsibility of the Post Office to get the joint giro and the cash value and/or cheque to their sponsoring bank, which in turn will put the transaction into the clearings. This can add up to 3 days to the time it takes to clear the transaction.
History of the credit clearing
The credit transfer scheme was introduced by the clearing banks in 1961 and meant that, for the first time, it was possible for both customers and non-customers to make payments to an account at any bank. This was almost a decade before automated payments were introduced by the Bankers’ Automated Payments Service (now called Bacs) in 1969.
National Girobank had introduced an internal credit clearing system, which emulated the continental giro credit system, and the Committee of London Clearing Bankers implemented the credit clearing to match that innovation. In the early days of credit clearing, the principle credit clearing items were traders’ credits, dividend payments and mail order payments from catalogue agents. Dividend payouts peaked at the end of each financial quarter and extra staff were drafted in for adding machine listing duties in the credit clearing departments.
Clearing volumes grew rapidly during the 1970s, as mail order catalogues grew in popularity and agents would regularly pay in bank giro credits with cheques or cash as they processed the catalogue orders. The BGCs were returned to the billers by the banks, as they were needed for the account reconciliation process. These slips of paper also became conveyors of non-payment information, such as change of address details.
A major drawback in the early years was the lack of uniform paper credit clearing vouchers issued by the various banks. Each voucher was handwritten by the customer, which led to significant numbers of errors. These errors threatened the accuracy of the data (amount and account details) passing between the banks. It was much later that the format for bank giro credits was agreed by the banks, leading to the development and adoption of C&CCC Standard 3.2 – Automated Processing of Vouchers (Credits). It took many years to rid the system entirely of handwritten vouchers and it was not until 1998 that they were finally banned. Since then all bank giro credits passing through the credit clearing must comply with design, layout and printing requirements of C&CCC Standard 3.2 – Automated Processing of Vouchers (Credits).
As well as managing the cheque clearing after its establishment in 1985, the C&CCC also assumed responsibility for the credit clearing from this time.
Credit clearing volumes peaked in 1998 when the C&CCC cleared 178 million items. Volumes started declining in the following year, as a result of banks banning handwritten BGCs and no longer accepting non-customer transactions, i.e. those where the bank has no relationship with either the beneficiary of the bank giro credit payment or the paying customer.
Over 90 per cent of the items now going through the credit clearing process are for bill payments. Bank giro credits are generally paid in at the payer’s bank but, as more and more consumers move from cheques and cash to automated payments and, more recently, to online and mobile banking to settle their regular bills, we expect the decline in credit clearing to accelerate further. Since 2006 volumes have been in double digit decline and by 2017 the rate had accelerated to over 20% and the C&CCC cleared 17 million items.
In spite of the year on year decline in the use of the credit clearing for bill payments, our research shows that for consumers, paying a bill by cheque over the branch counter of a bank is one of the most important uses of cheques. Indeed, most customers (consumers, businesses and charities) pay their cheques into their bank or building society accounts over a branch counter. So when the cheque imaging process was designed, the Cheque and Credit Clearing Company made sure that the new system would process bill payments accompanied by cash or cheque in addition to sterling cheques drawn on UK bank accounts and other eligible debit items (postal orders, sterling travellers’ cheques, bankers’ drafts, dividend cheques, government payable orders and warrants).
The BGC standard
The C&CCC requires that all bank giro credits passing through the credit clearing system comply with the design, layout and printing requirements of C&CCC Standard 3.2 – Automated Processing of Vouchers (Credits). CPAS-accredited cheque printers can also print bank giro credits, and a number of companies that are certified to print the vouchers. This has led to improvements in the quality of the vouchers and has reduced processing errors. In practice, however, any company can print bank giro credits, provided they comply with the requirements of C&CCC Standard 3.2 – Automated Processing of Vouchers (Credits). As a result many companies print them, which means that the quality of bank giro credits is much more difficult to control.
The credit clearing process
Bank giro credits are cleared and settled in much the same way as cheques, over a three-day period, and they use the same processing equipment and the same exchange centres. However, there is less automation – paper is exchanged but digital files are not – and the volumes are about one-tenth that of the cheque clearing volumes. Banks settle for the credit clearing through the Bank of England, as they do for the cheque clearing.
Cheque imaging was launched on 30th October 2017 on a phased roll out basis. In addition to processing sterling cheques drawn on UK bank accounts and other eligible debit items (postal orders, sterling travellers’ cheques, bankers’ drafts, dividend cheques, government payable orders and warrants), the system processes bill payments accompanied by cash or cheque. So, when a customer pays a utility bill at the branch counter by cash or cheque, the accompanying bank giro credit is turned into an electronic message that passes through the Image Clearing System to the bank of the utility company concerned, to pay that bill. It operates to the same faster timescales as the cheque clearing so if a customer pays their utility bill at a branch counter on a weekday (before the advertised cut-off time), the payment will reach the bank account of the utility company concerned by the end of the next weekday (bank holidays excluded).
To find out more about the Image Clearing System, click here