Payments made electronically will be processed in hours, instead of the current three days, under new proposals.
Economic secretary to the Treasury Ed Balls has given governmental backing to payment reforms recommended by the OFT (Office of Fair Trading), and has announced the establishment of a governance body, the Payments Industry Association, to monitor the changes.
Under the new regulations, to come into force in November next year, payments made online or by telephone or standing order will clear "in a matter of hours, and potentially near real-time for internet and phone payments", according to a Treasury statement. Interest will no longer be payable to banks while payments are in transit between them, removing any incentive for delays, the statement added.
Handling time for cheques will also be shortened by the regulations.
Jonathan May, chairman of the Payment Systems Task Force at the OFT, said: "The creation of the Payments Industry Association is good news for both consumers and businesses. It will provide strategic direction to the development of payment systems in the UK and its strong governance arrangements will ensure that the needs of users are taken fully into account."
Ed Balls also claimed the announcements are good news for consumers and small businesses. "They will benefit from faster electronic payments, and more certainty and greater transparency when making cheque payments," he said. "It's also good news for the payment systems industry, which has worked hard to develop an innovative model of self-governance in line with the government's better regulation agenda."
However, Eddy Weatherill, a spokesman for the Independent Banking Advisory Service speaking to the Metro newspaper, sounded a note of caution. The estimated £30m a year lost by consumers as a result of delays in transferring money will have to be recouped elsewhere by banks, he warned.
"Everything affects the consumer, and when you shut one door, another opens," Weatherill said. "This just means you pay different charges in different ways. Whereas something was once free, it will now cost £5 or £10."