CHAPS Payment in the UK: Features and Alternatives

FinTech combines seemingly incongruous things. You are in the right place if you want to learn about fast and secure payments in the oldest existing currency. UK finance harmoniously combines the glorious history of the pound sterling, the solid traditions of British banks, and the latest technologies, and the CHAPS payment system is one confirmation of that.

Given that CHAPS payments account for over 90% of total sterling payment values, I will focus on CHAPS and compare it to other available bank transfer systems so you can see which payment solutions will help your business.

Payments and Settlements in the UK

The United Kingdom’s payment and settlement system corresponds to the status of one of the world’s largest economies and financial hubs. Here are the primary payment methods and settlement systems in the UK.

Types of Payments in the UK

#1 Cash payments

Despite the growth of cashless purchases, cash is still widely popular in the UK. According to data for 2023, 12% of all payments were made in cash.

#2 Card payments

United Kingdom residents increasingly preferred debit and credit cards, and since 2017, debit cards have surpassed cash as a payment method. Statistics report 23 billion debit card payments in 2023, highlighting their popularity as the most-used payment option.

#3 Direct debits and standing orders

Direct debits: Automated payments from a customer’s account to a merchant’s account.

Standing orders: Regular payments are set up by the account holder for another account.

Both are popular for recurring payments like bills and subscriptions.

#4 Mobile and digital payments

Apple Pay, Google Pay, PayPal, and similar services are rapidly rising. Consumers increasingly use e-wallets of various types. Contactless payments through mobile devices, using Tap to Pay technology, have also increased, as 99% of adults in the UK access digital payments.

#5 Bank transfers

Several systems of bank transfers are available in the UK, in particular, including:

• BACS (known initially as Bankers’ Automated Clearing Services)
• Faster Payments (Faster Payment System)
• CHAPS (Clearing House Automated Payment System)

After briefly describing the settlements, I will consider these bank payment systems, their features, and use cases.

Types of Settlements in the UK

Settlement systems ensure the finality of payments by transferring funds between banks and financial institutions.

#1 Net settlement systems: Settlement occurs on a net basis, meaning the net position of all payments is settled at the end of the day.

#2 Real-time settlement systems: They are generally used for urgent, low—to medium-value payments.

#3 Gross settlement systems: Settlement occurs on a gross basis, meaning each payment is settled individually.

The format of the blog article does not allow us to consider in detail all the variety of payments and settlements used in Great Britain. However, two gross settlement systems are worth mentioning:

• Real-time Gross Settlement, or RTGS, is a payment settlement system for large-scale interbank transfers and other high-value transactions. RTGS settles payments individually in real time, ensuring immediate finality.
• CREST is an electronic settlement system for securities transactions operated by Euroclear UK & Ireland. This system settles trades in UK and Irish equities, bonds, and other financial instruments. CREST typically settles transactions on a T+2 basis two business days after the trade date.

What is CHAPS?

The Clearing House Automated Payment System (CHAPS) is a same-day payment system used in the United Kingdom since 1984.

CHAPS is managed by the Bank of England and is primarily utilized by financial institutions and corporations for urgent and high-value payments. In 2024, CHAPS processed an average of £350 billion per day. Now, CHAPS serves 0.4% of UK total payment volumes, but at the same time covers 91% of total sterling payment values.

The peculiarity of CHAPS is that it has two levels of participation:

• banks-direct participants, the number of which is small (lately, between 30 and 40)
• and thousands of financial institutions that have the opportunity to make CHAPS payments via direct participants.

Source

How Do CHAPS Payments Work?

CHAPS payments are made through an electronic bank transfer system using a network of banks and financial establishments. A business or person making the payment has their bank contact the Bank of England, which proceeds with the settlement of the transaction. The funds may move within only a few hours, certainly by the close of the same day’s business.

To initiate a CHAPS payment, the originator must provide the receiving bank with details such as the sort code, account number, and account holder’s name. A guaranteed transaction involves taking funds from the originator’s account and crediting them to the beneficiary’s account, which can be done in minutes.

Here’s how CHAPS payments work:

#1 Initiation: The payer instructs their bank to make a CHAPS payment.

#2 Processing: The payer’s bank sends the payment instructions to the CHAPS system.

#3 Settlement: The payment is settled through the Bank of England’s Real-Time Gross Settlement (RTGS) system.

#4 Completion: The funds are transferred to the payee’s bank, and the payment is completed.

Source

CHAP Payment Features

Look at their main points to better understand CHAPS payment meaning and navigate how to apply such operations for your business.

Speed

Settlements by CHAPS are in real time. Funds are transferred and hence become available to the recipient on the same banking day. This matters even more when it comes to significant and time-bound transactions. The CHAPS mechanism allows payers to avoid payment delays and associated undesirable financial consequences.

Transaction limits

CHAPS is intended for large-value transactions and does not set an upper transfer amount limit. However, due to the CHAPS fee, this system, as a rule, is not used for low-value payments. The lack of a transaction limit makes CHAPS the preferred method for large corporate payments, property transactions, and other high-value financial activities.

Fees and costs

Banks typically charge a CHAPS fee, ranging from £25 to £30 per transaction, depending on the bank. For this reason, CHAPS is often chosen for transactions where speed and security benefits outweigh the associated costs.

Security

CHAPS is built to minimize the risks associated with high-value transactions. The system verifies and processes each payment through secure channels to reduce fraud risks. Additionally, the CHAPS payments are irrevocable. It means that a completed transaction cannot be reversed. This feature adds extra security for both parties involved in the CHAPS transfer.

Source

CHAPS vs. BACS

The diversity of the UK’s financial system allows businesses to use different payment services. One of them is the well-known BACS or Bacs. Check out the Bacs meaning before we jump into the CHAPS vs Bacs comparison.

Bacs in Brief

BACS (initially known as Bankers’ Automated Clearing Services) is a bank transfer system operated in the UK. Formed in 1968, it has become the backbone of the UK’s electronic payment methods. The system is quite popular with regular pay like salaries, pensions, utility bills, and many more, processing millions of transactions daily.

Generally, Bacs payments take three working days for clearance, including submission, processing, and settlement days. The system groups and processes payments in batches.

This approach can slow down transactions. That is why bacs payment time can be a stumbling block when choosing a service for immediate payment.

Source

CHAPS Payments vs. BACS Payments: General Comparative Overview

Having understood the general features of the payment systems, you can compare CHAPS vs. BACS based on the most essential criteria: speed, costs of these transactions, and features that will be helpful to consider.

Speed:

• BACS: BACS requires three days of operation to complete payment. This BACS payment time can be a disadvantage if a transaction must be made quickly. At the same time, BACS payment is suitable for regular expenses such as salaries, utility bills, and supplier invoices.
• CHAPS: The Clearing House Automated Payment System provides same-day payments. CHAPS transfer time is meant for high-value and urgent payments. If the payment is made prior to the cut-off time, the funds will be transferred in a few hours on the same business day. Thus, the CHAPS transfer time is much shorter than that of BACS.

Transaction limits:

• BACS: The amount you can send via bacs is not limited, at least theoretically. However, each individual bank may set its own limit.
• CHAPS: This system is utilized for high-value transactions; therefore, the amount to be transferred does not have an upper limit. Hence, it is used for large purchases such as property transactions.

Costs:

• BACS: Bacs payments are free for the payer. However, the payees may be charged under the bank policy they are using. For example, in the corporate banking tariffs of high street banks, you can find charges of 45p per Bacs payment for a transaction and £5.00 per file for each file submitted via this system’s file gateway.
• CHAPS: CHAPS payments generally have a transaction fee of £ 25 to £ 30, which is usually borne by the sender.

Special features:

• BACS: Bacs provides Direct debit capabilities, enabling companies to take payment directly out of their customers’ accounts. It also supports Direct credit, which is used to make regular payments like salaries.
• CHAPS: This is a fast and secure payment method and, therefore, particularly appropriate for urgent payments. It is used to make payments of a high magnitude value, such as purchasing private property.

CHAPS and Faster Payments

We considered a payment service that competes with CHAPS regarding the number of transactions. It’s time to look at an alternative to CHAPS in terms of the speed of bank transfers.

Overview of Faster Payments

Faster Payments is an electronic payment system designed for speed and efficiency. Introduced in 2008, it allows individuals and businesses to send and receive payments 24/7.

The system is managed by Pay.UK and is widely used for online banking, mobile apps, and telephone banking transactions. Faster Payments is available 365 days a year, including weekends and bank holidays. It is accessible to both personal and business customers and serves everyday transactions.

If both the sender and the recipient of the money transfer are served by banks that are direct participants of the Faster Payment System, the funds can be available almost immediately. In some cases, payment may take up to two hours.

Source

Comparison of Faster Payments and CHAPS Payments

As in the case of CHAPS vs. BACS, we will compare the payment options CHAPS and Faster Payments on the same criteria that are most important for each business:

Speed:

• Faster Payments: Transactions are usually completed within seconds to two hours.
• CHAPS: Payments are processed on the same day if submitted before the cut-off time, typically around 2 PM.

Transaction limits:

• Faster Payments: In most cases, the maximum Faster Payments limits per transaction are £250,000. (The payment system operator notes the possibility of payments of up to £1 million, but banks set their own Faster Payments limits).
• CHAPS: There is no upper limit for CHAPS payments, making it suitable for high-value transactions. This service fits for exceeding £250,000, overcoming the Faster Payments limits. At the same time, the CHAPS transfer time is not significantly inferior to that of Faster Payments

Costs:

• Faster Payments: Generally free for personal banking customers, though some business accounts may incur charges.
• CHAPS: Typically comes with a fee, which can vary between £25 to £30 per transaction, depending on the bank.

CHAPS Payment vs BACS Payment vs Faster Payments: Use Cases and Potential Scenarios for Your Business

Based on the practices of businesses in various industries, here are the most common cases of using one or another of the compared payment systems.

When to utilize BACS payment:

BACS is generally appropriate for routine, bulk, and non-urgent payments for which cost efficiency may be a critical factor.

This service is more applicable to regular and predictable payments, such as employees’ salaries, regular payments to suppliers, and monthly subscription fees. It is common in payroll processing whereby a company can schedule its payroll several days in advance to guarantee timely payment to its employees.

When to utilize CHAPS payment:

CHAPS is the preferred choice for urgent or one-off high-value transactions. These options range from huge corporate payments, the purchase of real estate, and the acquisition of businesses to various urgent remittances that require immediate settlement.

If you’re buying a house or need to settle a critical invoice that needs urgent payment, CHAPS is the perfect tool. It’s also ideal for financial institutions needing to move large sums quickly between accounts.

When to utilize Faster Payments:

As a rule, Faster Payments caters to everyday needs like bills or invoice quick settlements. Immediate or near-immediate fund transfers are also an indisputable advantage of the system.

The constant availability of payments, including outside of business days, is of particular value. If you have unforeseen expenses or need urgent delivery or service, this is the case for Faster Payments.

Source

Custom Software Solutions for Seamless Payments for Businesses Operating in the UK

Fintech capabilities allow the creation of a wide range of software development products tailored to the needs of businesses that use CHAPS, BACS, and Faster Payments systems. Here are what solutions can assist in the efficient operation of your company in the UK financial environment:

1. Custom payment gateways that support CHAPS, BACS, and Faster Payments. Such payment gateways can ensure seamless transactions within the UK market.
2. Monitoring and reporting tools that track payment statuses and ensure compliance with UK financial regulations.
3. Secure payment solutions aimed to implement advanced fraud detection algorithms to safeguard financial transactions. Integrating know-your-customer (KYC) technology into software systems also significantly enhances the protection of both companies and their customers.
4. Integrations via developed-from-scratch APIs that connect seamlessly with UK banks, enabling businesses to access CHAPS transfer or BACS payments directly from their platforms. You can use the same integrations for third-party payment providers to expand payment options and improve customer experience.
5. Financial dashboards for a unified view of all payments, insights on cash flow, and income forecasts. You can also supplement operational management capabilities with a digital analytical toolkit that provides detailed reporting on payment trends and data visualization. Also, you can consider API integrations as an element of open banking solutions that allow access to banking services through almost any digital product.

Final Thoughts

Now, you have a clearer picture of the details of the payment and settlement systems operating in the United Kingdom. The bank transfer systems I reviewed have their pros and cons, but each of them is suitable for specific tasks that you may face in your business:

• CHAPS - for high-value payments on the same day, for example, for time-sensitive transactions, property acquisition, and operations on money markets.
• BACS - for bulk and non-urgent payments, for instance, subscription fees, utility bills, salaries, etc., in a cost-effective way
• Faster Payments - for quick payments 24/7, for example, for urgent bills and unexpected expenses

After learning how CHAPS, BACS, and Faster Payments work and how they differ, you can refine your ideas on digitizing your financial management.

Doing business in the UK, you may leverage DashDevs’ expertise to streamline payment processes, enhance security, and ensure compliance with local regulations. Our team has more than 12 years of experience in the UK market, having embodied about 90 projects of our clients.

Contact us and share your company’s issues and needs with our experts to refine ideas and strengthen your position in the UK market with custom fintech solutions.