Electronic payments are set to clear within 24 hours under a new faster service agreed by high street banks, it has been announced.
Payments would either clear on the same day or the next day, depending on when the payment was made, the Office of Fair Trading said.
Banking industry body APACS has set up an implementation group to look at ways of introducing the new system, which should be up and running by the end of 2007.
Jonathan May, OFT director of markets and policy initiatives, said: "This is good news for bank customers, both personal and business."
The faster service will affect all electronic payments between banks made by telephone or internet, as well as standing orders. This includes money being transferred between accounts held with different banks, electronic bill and credit-card payments and the payment of standing orders, which are usually used for charity donations and magazine subscriptions but in some cases also cover mortgage repayments.
The news comes ahead of an announcement from the Office of Fair Trading calling on banks to increase the speed of electronic payments.
The OFT is widely expected to say the current system is unacceptable, and call for banks to modernise their systems.
Banks have been coming under increasing pressure to speed up their payment systems since the issue was first raised by former chairman of the London Stock Exchange Don Cruickshank in his Government-commissioned report on British banking five years ago.
It has been estimated that banks make an extra £25 million a year profit from interest earned on money which is debited from an account on the day a payment is made but does not arrive at its destination until three days later.