The High-tech World of Finance

Posted on 8 Oct 2008 at 16:29

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Computers run the world's finances, from high-street ATMs to number crunchers at the Bank of England. Mike Bedford examines the machines that control our money.

Money might make the world go round, but have you ever thought about the technology that makes the money go round? When your employer pays you, what actually happens to move the money from the company's account to yours? And what happens when you put a cash card in a cashpoint machine or enter your credit card's PIN at the supermarket?

Underpinning the convenience of these computerised money machines are systems designed to protect customers and banks from fraud. It's a complex business and this month we're taking a close look at how financial computer systems take care of your money.

It's not just in the realm of personal cash that computers affect the pound in your pocket, though. At this time of market uncertainty it's interesting to look at the systems that have a less obvious but still substantial effect on our finances. Computer models of the British economy guide the Bank of England in deciding whether to change interest rates, and there's the frightening prospect of systems buying and selling vast quantities of shares on the Stock Exchange with barely any human intervention.

Banking Systems

To find out what happens when we pay a cheque into the bank or make a payment by direct debit, we spoke to Sandra Quinn of APACS, the UK trade association for payment systems. She tells us that "money moves between banks through the various clearing systems that banks subscribe to. The banks hold settlement accounts at the Bank of England, and it is across these accounts that settlement takes place." But what happens if a bank doesn't have an account at the Bank of England, or if it is not a member of a clearing scheme? "They can still offer their customers access to the various payment options by simply buying or accessing payment services through another bank that is a scheme member," says Quinn.

So we have a range of payment systems in place, but most people don't really know what these are or how they work. Nick Masterson-Jones is director of information technology at VocaLink, which, according to its claims, provides "the backbone of the banking industry". He says that "Bacs, LINK and the other payment schemes create and manage the rules. These rules determine how the system works. The part VocaLink plays in this is to build, maintain and operate the systems that bring these rules to life. For example, under the Bacs rules, payments must be submitted by 10.30pm on day one, these are processed by VocaLink overnight and output to the receiving banks by 6am the following morning. VocaLink operates this service under contract with Bacs and has a large number of contractual service levels that define how the service should run."

VocaLink's services run the systems behind the Bacs service, including Direct Debit and Bacs Direct Credit. "VocaLink processes over 90 million items on a peak day and provides connection and processing for 120,000 corporate users of the Bacs scheme," says Masterson-Jones. "The LINK service connects the UK's 63,000 ATMs and the new Faster Payments service, which was launched in May, allows account-to-account transfers to be made in near real-time," he claims. VocaLink handles it all.

So is VocaLink basically providing the network? "No, it's much more than that," says Masterson-Jones. "VocaLink provides the core processing systems at the heart of each of these schemes. Our award-winning infrastructure processes transactions submitted to us over either our own proprietary networks, over a unique encrypted internet submission channel using the world's largest interoperable Public Key Infrastructure (PKI) system or via SWIFT, which is a bank network used by financial institutions around the world."