For businesses or individuals that want to make a sizable, fast, pounds sterling/GBP transfer in the UK, one of the best solutions is the Clearing House Automated Payments System (CHAPS). Administered by the Bank of England since 2017, CHAPS is one of the largest high-value payment systems in the world in terms of transaction volume.
Prior to the introduction of CHAPS in 1984, the only way to settle five-figure, or greater, sterling payments with same day value was to submit a physical cheque to the Bank of England using the Town Clearing system. Fast-forward from the bowler hat and pinstripe era to the digital landscape of today and CHAPS has processed 3.9 million same-day transactions worth £7.5 trillion.
On average, CHAPS handles approximately £376 billion in transfers every day, with a record of £542 billion set on 31 January 2022. To put that in context, although CHAPS represents just 0.5% of total UK payment volumes, it accounts for 93% of total sterling value.
What is a CHAPS payment?
Although the original minimum threshold for CHAPS payments was £10,000, a minimum or maximum transaction amount no longer applies. In practice, CHAPS is almost exclusively used for one-time, high-value transactions where a delay would represent an unacceptable expense or fraud risk. For example, CHAPS is typically the money transfer system used for house purchases or deposit payments, six-figure supplier or tax payments, and large asset purchases, such as a car or boat.
CHAPS payments can only be made directly through these financial institutions that hold Direct Participant status or indirectly through their 5,500-strong network of partners. That covers most of the major international banks, high street banks and more recently challenger banks and payment service providers. The process is straightforward and in most cases the bank where you hold your personal or business account will take care of the back-end formalities. In some cases, however, financial institutions may suggest an alternative method for completing a high-value transfer.
CHAPS v Faster Payments (FPS)
Whereas CHAPS offers same-day payments on workdays with no upper or lower limit, Faster Payments is used to transfer funds instantly and is available 24/7 through online banking. While the maximum for a Faster Payment transfer is now £1,000,000, many high street banks set lower limits (around £10,000) for customers.
CHAPS v Bacs
A business may instruct its bank to make a CHAPS transfer for a one-off payment where time is of the essence, but will typically use Bacs (Bankers Automated Clearing System) for recurring payments, such as payroll or insurance. The advantage of choosing Bacs over CHAPS is that the fee is much lower for corporate customers. The disadvantage is that a Bacs transfer takes three to five days to complete, whereas CHAPS-transferred funds will be with the recipient on the same day, provided the sender meets their bank’s daily cut off time. These vary from bank to bank as banks can set their own cut off times, but CHAPS closes for bank-to-bank payments at 6pm.
The benefits of CHAPS
Apart from the relatively fast speed and absence of transaction limits, the most compelling advantage of CHAPS is its high level of operational resilience. CHAPS payments are routed through the SWIFT network and processed through the Real Time Gross Settlement (RTGS) system, ultimately reducing settlement risk since critical information is shared for a shorter window of time. That’s more robust than net settlement, in which transfers are not processed until the end of day as part of a batch (as is the case for Bacs transfers).
The disadvantages of CHAPS
Whereas Bacs and Faster Payments are free of charge for personal (but not business) customers, a CHAPS transfer incurs a fee. A business might consider the fee nominal, but for an individual customer it could be a dealbreaker. Charges vary, from bank to bank, but are usually between £20 and £30.
Another important consideration is the cut-off time. Although CHAPS is open from 6am, customers must comply with the specific cut-off time specified by the branch. Miss this deadline and the transfer will not be processed until the following working day. Note too that CHAPS transfers are irrevocable. If for any reason the instructions given to the bank are incorrect, there is no guarantee of the money being refunded.
Zai drives value through payment technology
Zai’s payment APIs help businesses manage multiple payment workflows and move funds, so they can pay and get paid without delays.
We go beyond integrating several payment types and apply our real time expertise to a reliable micro-service architecture that powers your payment workflows.
Using APIs, we enable authentication, liquidity, payment and settlement with zero wait-times.
To find out more about the importance of payments in the customer journey, download the guide below.