Payset prespective
March 6, 2023

BACS Vs CHAPS Payments

Confused about the differences between BACS and CHAPS payments and which is better suited to you and your business? Read our guide to find out more.

BACS and CHAPS are two of the most common methods of electronic payment. These can be made online, over the phone, or in a branch of a high-street bank. BACS and CHAPS can be used for many different forms of payment such as paying for services, bills, memberships, or staff salaries.

What is the BACS Payment Method?

BACS is an abbreviation for BACS Payment Schemes Limited, which was previously known as the Bankers Automated Clearing System. The BACS payment scheme changed hands in 2008 and is now run as a subsidiary of Pay.UK. The scheme supports the BACS Direct Debit, BACS Direct Credit, and Cash ISA Transfer Service systems. In 2018, BACS celebrated its 50th birthday and has processed over 6 billion transactions amounting to almost £5 trillion.

What is the CHAPS Payment Method?

The Clearing House Automated Payment System (CHAPS) is a real-time settlement payment system which is also used for sterling transactions in the UK.

CHAPS was originally created by the Bankers Clearing House in February 1984. The system also operated a 'town clearing' scheme, where cheques cleared the same day between the 'town' bank branches in central London. With the closure of the town clearing scheme in the mid-1990s, the operating company was renamed to CHAPS Clearing Company Limited and transferred to the Bank of England in November 2017.

What is the SWIFT network?

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system is a large-scale messaging network used by banks and other financial institutions. Users can quickly send and receive information, such as money transfer instructions. Over 11,000 global SWIFT member institutions sent an average of 42 million messages per day with this payments network in 2021, which was an increase of over 11% from 2020.

Read more in our blog on the SWIFT system.

What are the main differences between BACS and CHAPS payment methods?

BACS payments are generally used for recurring payments, while CHAPS are used for one-off payments. BACS payments are used in the UK for direct debits and salaries. They take a little longer to process and require advanced knowledge of a payment date.

CHAPS payments are processed immediately and they are used for transferring amounts worth over £10,000 in the UK. Businesses are likely to pay for equipment, or services with CHAPS, while they will use BACS payments to send, or receive, recurring payments.

BACS Vs CHAPS: Which is faster?

BACS payments usually take around three working days to clear. Payment instructions are sent to the BACS system on day one. The second day is used for bank processing, while on the third day, the payment is debited from the sender’s account and credited to the recipient’s account.

A CHAPS payment will be received on the same day, as long as the instructions are submitted by the bank’s cut-off time. The CHAPS system opens at 6am each working day and will be open to receive by 8am with payments sent with a cutoff of 10am.

Which payment method is better for your business?

Businesses tend to use BACS to pay their employees and suppliers, whilst the UK government also uses it to pay welfare and pension payments. Businesses use the system to schedule regular payments easily, where the payment details are known well ahead of time. 

A lot of the modern payments software is now compatible with BACS and that makes it ideal for payroll departments. One of the drawbacks of the BACS system is the time that it takes to process transactions. Payments take three days to clear, which means that BACS is not the best option for time-sensitive transactions.

Which payment method is more expensive?

Costs for making BACS payments are complicated because users must first be set up on the system. If you want your company to be set up for Direct Access, they will need to invest in staff training, pay for BACS-approved software, and also pay an initial set up fee which can be upwards of £5,000. This option is for large organisations with big volumes of recurring payments.

Alternatively, you can use BACS via a Direct Debit bureau, which is a third party which will take on the expensive setup fees and handle payments. The initial set up fee for this arrangement is between £400-£500.

After paying for one of these set up options, every payment you make will incur transaction fees. Banks charge from £0.05-£0.50 in transaction fees while bureaus charge £0.20-£0.50 per transaction. The higher the volume of transactions, the higher the transaction fees.

CHAPS on the other hand come with a set fee of £25 or £30 for each transaction. It is obvious that CHAPS is cheaper and faster than BACS for limited payments, however, it would be impossible to use this for large-scale salary payments for example.

What are the limitations of BACS payment methods?

There are some limitations involved in using the BACS payment method. Overdrawn accounts is one, where a payment may not be sent due to insufficient funds in an account. The long delivery method of three days makes them suitable only for payments that are not time-sensitive. Finally, the scheme has a “set and forget” system and once payment instructions are submitted it can mean that users lose the ability to check, or adjust individual payments.

What are the limitations of CHAPS payment methods?

Some limitations also exist with the CHAPS system as the strict cutoff times add some complexity to time-sensitive transactions. Another limitation of using CHAPS is that payments are hard to cancel once they are submitted. Finally, the cost of each transaction mean it is not ideal for regular payments.

Is there a cheaper alternative to BACS and CHAPS Payment methods?

Introduced in 2008, Faster Payments is an alternative payment scheme that takes less than 2 hours to complete. Transfers are capped at £250,000 per transaction and only participating banks can facilitate Faster Payments. Currently, this is only 10 banks in the UK. Typically, Faster Payments tends to be used for small transfers and mobile payments.

Payset can process all three payment methods and setting up an account is easy.

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Frequently asked questions

What is a multi-currency account/virtual IBAN?

A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.

You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.

A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.

  • Funds can be deposited and withdrawn from the account for a small fee.
  • Account holders can send and receive money with other Payset users for free.
  • Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS. 
  • Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
  • We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days

Are there limits on the amount of money I can send and receive?

No, there are no transaction limits on Payset multi-currency accounts.

However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.

How is Payset regulated?

Payset is regulated as an authorized Electronic Money Institution by the UK Financial Conduct Authority. Our activities are also regulated by the Payment Services Regulation 2017 and the Electronic Money Regulation 2011 (SI 2011/99).

How do I send money from my account?

Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.

Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.

Information contained in this publication is provided for general education and information purposes only and should not be construed as legal, tax, investment or other professional advice or recommendation, or an offer of, or solicitation for, any transactions or any other actions (or refraining therefrom); This material has been prepared without taking into account any particular recipient’s financial objectives or situation. We make no warranty, guarantee or representation, whether express or implied, as to the completeness or accuracy of the information contained herein or fitness thereof for a particular purpose; Use of images and symbols is made for illustrative purposes only and does not constitute a recommendation or advice to take or refraining from any action; Use of brand logos does not necessarily imply a contractual relationship between us and the entities owning the logos, nor does it represent an endorsement of any such entity by Pay Set Limited, or vice versa; Market information is made available to you only as a service, and we do not endorse or approve it; Any reference to past performance, predicted returns, or likelihood performance scenarios may not reflect actual future performance and certainly do not guarantee future outcomes.

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