By Mariana Almeida Marques
CHAPS, Bacs and Faster Payments are the three most popular payment schemes in the UK. We’ve discussed what are Bacs payments and how do Faster payments work in previous articles, so now it’s time to dive into CHAPS.
CHAPS stands for Clearing House Automated Payment System and it was originally established in 1984 in London by the Bankers Clearing House. It is fully operated by the Bank of England since 2017, who is responsible for setting all CHAPS standards and managing the system across the whole of the UK.
This system allows companies and individuals to make bank-to-bank payments transfers on the same day. If the payment is initiated during working hours, then it is processed instantly. If it is initiated anytime outside working hours, then it will take one working day to process. The standard working hours stipulated by the Bank of England are 6am to 6pm. However, cutting-off hours may vary from bank to bank so you will need to check with your bank before initiating the payment. Bank holidays and weekends may delay the payment as well.
A great advantage of CHAPS is that there are no limits to the amount of money you can transfer, so this payment system is commonly used to make high-value (over £10.000), one-off payments. There is also no minimum amount required, though Faster Payments and Bacs are better schemes for low-value payments.
CHAPS is operated by the Bank of England and undergoes strict banking standards, so it is considered a safe and secure payment scheme. It is also settlement risk-free, as CHAPS payments are made in real-time and are irreversible.
Another advantage of using CHAPS is, of course, the quick settlement time. Though CHAPS is known to process same-day payments, most of the times the payments are actually settled immediately and, in all cases, they won’t take longer than one working day to be cleared.
There are over 30 direct participants in CHAPS– the list includes all the most popular traditional banks such as Santander, HSBC, Lloyds Bank and Barclays UK, as well as challenger banks, PSPs and other financial institutions. There are also over 5.000 financial institutions who support CHAPS indirectly via one of the direct participants, also called third-party sponsors.
There may be a few disadvantages to using CHAPS depending on the purpose of your payment and how urgent it is. Firstly, cutting-off times can be troublesome and delay your payment. You also need to ensure you don’t initiate a payment after the cutting-off time on a Friday, for example, as that means it can only be processed on the following Monday. Another disadvantage of CHAPS is that payments are irreversible. Therefore, if you make a mistake and send the money to the wrong account, it will be very difficult to get your money back.
There is a set fee for CHAPS payments, that usually varies between £15 to £30 depending on the bank. It can also vary depending on the type of account you have with the bank. HSBC, for example, charges £17 for payments made via Business Internet Banking and £12 from a Clients Deposit account. Virgin Money, TBS and Lloyds charge a £30 set fee, whereas Barclays doesn’t charge any fee for Personal, Premier or Platinum customers.
Though there is no minimum amount of money required, low-value CHAPS payments aren’t popular due to the fees involved. Therefore, and because there isn’t a maximum limit either, this system is more often used for high-value and time-sensitive payments. In 2019, the CHAPS system settled close to 200.000 payments every day, with an average value of £1.7 million each payment. Yearly, that corresponds to £83.4 trillion transferred (Bank of England data).
CHAPS can be used by large corporations to pay their taxes or suppliers, or by individuals when making a down-payment for a house or purchasing a car. Solicitors and conveyancers may also use this system to complete housing transactions, and large financial institutions use CHAPS for foreign exchange transactions. As we can see, all of these transactions are very high in value, so CHAPS isn’t the type of system to be used regularly by individuals.
The main difference between these three types of payment schemes is their settling times. Whilst Bacs payments take three working days to settle, CHAPS payments are processed on the same day and Faster payments are processed immediately. CHAPS and Bacs can only be processed on working days and have strict cut-off hours, whereas Faster payments can be processed at any time of the day, 24/7/365.
They are also used for different purposes. Bacs, for instance, is mostly used by companies to pay salaries or pensions, whereas individuals often use Faster payments to make regular bank-to-bank transfers to pay for goods. Both Bacs and Faster payments have transaction limits, whereas CHAPS payments have no minimum or maximum amount limits.
Imburse enables companies to connect to the entire payment ecosystem- including all providers and technologies available worldwide. Therefore, by connecting to us, you can easily connect to banks and providers that offer CHAPS, Bacs and Faster Payments in the UK. We give you the flexibility you need to expand your business and operate efficiently anywhere in the world, at no additional cost. If you would like to know more about Imburse or request a demo, do drop us a message below and our team will be in touch.