September 26, 2022

What Is a CHAPS Payment & How Does It Work?

CHAPS payments are transactions made through the Clearing House Automated Payment System, a major U.K. payment settlement system that is nearly 40 years old.

CHAPS payments are transactions made through the Clearing House Automated Payment System, a major U.K. payment settlement system that is nearly 40 years old.

What Is a CHAPS Payment?

CHAPS is one of the largest and oldest payment networks in the U.K.

The system was created by the Bankers Clearing House in 1984 and was transferred to the Town Clearing Company Limited in 1985. Since 2017, CHAPS has been managed by the Bank of England.

CHAPS’ popularity is seen in its high daily volumes. CHAPS handles about £376 billion ($430 billion) worth of transactions daily. Broadly speaking, its volumes are increasing: on January 31, 2022, a new record was set when CHAPS handled £542 billion ($620 billion) in one day.

CHAPS has several advantages over other settlement options, but it is primarily intended to eliminate the need for written cheques or paper transfer slips.

CHAPS payments are largely intended for high-value transfers, though this limitation is more flexible than it once was. CHAPS payments were initially restricted to large payments above £10,000. Though it no longer has any minimum or maximum limits, CHAPS is typically used for payments above that amount.

Over 35 banks, including the Bank of England and Barclays, are direct participants in CHAPS. Other direct participants include the London branches of the Bank of China, the Bank of America, Banco Santander, and JPMorgan Chase. A complete list of participants can be seen here.

In addition to those direct participants, about 5,000 financial institutions are considered indirect participants. These indirect participants provide access to CHAPS through an agreement with a direct participant.

This widespread participation allows CHAPS to be available in many locations throughout the U.K. 

How Do CHAPS Payments Work?

Though there are many different ways to make a CHAPS payment, users typically do so through their online bank account. 

Step 1: Access Your Bank Account

First, log in to your online bank account and visit the CHAPS page.

If you cannot locate this page, contact your bank to find out how to access the CHAPS page on their site. Or, ask a bank agent to perform the transaction in person by visiting a branch.

You should also plan the time of your payment and request it before your bank’s CHAPS deadline.

Step 2: Provide the Necessary Information

Typically, you will need to provide some information when you make a CHAPS payment.

You will likely need to provide an ID, such as a driver’s license or passport. If you make a CHAPS payment in person, you may need to provide your bank’s debit card.

You may also need to provide confirmation of the payee and provide a reason for your payment. This information helps banks to reduce scams and fraud.

Step 3: Settle the Transaction Amount

 At this point, you can confirm your transaction and the amount of money that you want to send. There are usually no minimum or maximum limits.

You should also account for fees and conversion rates before confirming your payment.

Finally, the transaction will be settled, and it will be reflected in the accounts of the sender and recipient, just like with any other payment.

How Long Do CHAPS Payments Take?

CHAPS payments usually are settled on the day that they are sent.

However, banks also set cut-off times for CHAPS payments. If you want your payment to be settled quickly, you should carefully check your bank’s CHAPS deadline. If you miss this deadline, your CHAPS payment will usually be settled on the next business day.

Though CHAPS transfers are faster than other alternatives, they are not necessarily the fastest option. The U.K.’s Faster Payments Service is a better option for small and fast payments.

What Are The Fees & Costs Associated With CHAPS Payments?

CHAPS payments involve various fees, both for banks and end users. User fees are more affordable for large transactions than for small transactions.

Fee/Cost 1: Bank Fees

Banks and financial institutions that participate in CHAPS are charged various fees. According to the Bank of England, this includes annual participant charges and per-item fees. 

Direct participants also face other charges, including SWIFT tariff fees, regulatory fees, and service costs related to hardware and software maintenance.

Fee/Cost 2: End User Fees

End users who send transactions usually must pay a transaction fee set by their bank.

Most estimates suggest that banks charge end users between £20 and £30 per CHAPS transfer. However, some banks may charge up to £35 for a CHAPS transaction.

Even the highest CHAPS fees are negligible if a transaction is large enough. A £30 fee is 0.3% of a £10,000 transaction, for example.

Fee/Cost 3: Currency Conversion Fees

CHAPS transfers currently support only the pound sterling (or the British pound). As such, users must pay a conversion fee to send a different currency.

Banks typically charge a fee of about 1% on every currency conversion, which may or may not be included in the overall CHAPS fee.

What Are The Pros Of CHAPS Payments?

CHAPS has several features that make it ideal for individuals in the U.K.

Pro 1: No Minimum or Maximum Limits

CHAPS has no minimum or maximum payment limits.

Though CHAPS payments were at one time only used for large payments above £10,000, it is now possible to send any amount of money via CHAPS.

Pro 2: Transaction Speed

CHAPS settles transactions fairly quickly. If you send a CHAPS payment before your bank’s daily deadline, it will be received on the same day. 

If you send your transaction after the deadline, the payment will still be processed fairly quickly—typically on the next business day. 

Pro 3: High Operational Resilience 

CHAPS is highly resilient. It relies on the Real Time Gross Settlement (RTGS) systems of major banks and the global messaging network SWIFT to ensure that payments are rarely disrupted.

CHAPS payments are also non-reversible. As such, CHAPS payments almost always settle successfully, and there is little risk for banks participating.

Though these advantages are mainly of benefit to banks, the low-risk nature of CHAPS has encouraged many banks to provide the service to their users.

What Are The Cons Of CHAPS Payments?

CHAPS also has some limitations that may make it inconvenient for some users. 

Con 1: GBP Support Only

CHAPS is only used within the U.K. By extension, it only supports one currency: the pound sterling or British pound (GBP).

This limitation means that users must typically pay a conversion fee if they want to send money in any form other than the pound. Likewise, recipients must pay to convert the pound to their desired currency.

CHAPS supported the euro in the past, but this service option was discontinued in 2008. 

Con 2: Non-Proportionate Fees

CHAPS fees are usually set at a flat rate—usually between £20 and £35, as noted above.

Though this rate is competitive with many other international payment systems, it is not proportionate to the value of the transaction and therefore is inappropriate for small transactions.

Con 3: Strict Deadlines

Daily deadlines help banks route CHAPS payments efficiently.

This means that  CHAPS payments are usually available during standard business hours. The Bank of England, for example, allows CHAPS payments from 6 am to 6 pm Monday to Friday.

However, these deadlines mean that CHAPS is not always available when you need it. The service is closed on weekends and holidays, which may inconvenience some users.

What Sorts Of Payments Are Best For CHAPS?

CHAPS payments are typically used by individuals, businesses, and financial institutions. In short, anyone making a large financial transaction might find CHAPS useful.

Below are four commonly recognized categories of CHAPS payments.

Payment Type 1: Large Individual Payments

As an end user, you might use CHAPS when you make a large payment, such as when you purchase a vehicle or make a deposit on your house or property.

CHAPS payments are appropriate for large payments but are typically used for one-time payments rather than recurring payments.

Payment Type 2: Corporate Payments 

Corporations often use CHAPS for business-to-business transactions, such as payments to suppliers.

Additionally, businesses may use CHAPS to pay taxes, or they may receive CHAPS payments from individuals making large purchases.

Payment Type 3: Legal Property Transfers

CHAPS can be used to handle the sale of valuable property such as houses, business assets, and fine art. These sales are usually coordinated by legal agents such as solicitors and conveyancers. 

Payment Type 4: Financial Institution Payments

Banks and financial institutions may use CHAPS to send money to one another. CHAPS is especially useful for large payments related to money market settlements and forex transactions. 

Additional CHAPS Services

Though CHAPS itself does not include additional services, there are two closely related types of payment available in the U.K—specifically, BACS and the Faster Payments Service.

Service 1: BACS Payments

CHAPS payments are closely related to BACS payments. BACS was originally an abbreviation for “Bankers' Automated Clearing System,” but the name now standards for “BACS Payment Schemes Limited.”

Like CHAPS, BACS payments were created to eliminate the need for paper-based transfers and written cheques. 

Both systems were created by the Bankers’ Clearing House. BACS was created in 1968, while CHAPS was created much later in 1984.

BACS is slower than CHAPS, as payments can take up to three working days to clear. However, BACS is still in widespread use. It is typically used to pay employee

salaries and wages and can be used for many other purposes.

Just like CHAPS, BACS has gone through several organizational changes. It has been a subsidiary of Pay.uk since 2018.

Service 2: Faster Payments Service

Individuals in the U.K. can also use the Faster Payments Service, a banking initiative that aims to surpass both BACS and CHAPS with faster settlement times and lower transaction fees.

Faster Payments are designed to settle rapidly. Whereas CHAPS payments are settled within a day, and BACS payments are settled in three days, Faster Payments are typically settled in just seconds.

Faster Payments usually have low fees, typically around £2.50, making them ideal for small transactions.

However, these low fees are possible because the Faster Payments System does not support large transactions. Depending on one’s financial institution, Faster

Payments up to £250,000 may be possible, but larger transactions should generally be made through CHAPS or BACS.

The Faster Payments Service is run by Pay.uk. Both systems share some participants. Visit this page to see which banks participate. 

How Payset Can Help

At Payset, we provide support for CHAPS transactions and various other options. Here’s how you can benefit from our services.

Benefit 1: Receive Free CHAPS Payments

With a Payset account, you can receive CHAPS payments for free.

Most other methods of receiving money are also free. Visit our pricing page to find out more about our rates.

Benefit 2: Alternatives to CHAPS

In addition to receiving money through CHAPS, you can also send and receive money on Payset through various other services in Europe and the U.K.

We support other major EU payment options, including SEPA, Faster Payments, and BACS and international payment services such as SWIFT and ACH.

Our sending fees begin at 0.4% and vary depending on which foreign currencies you use. Receiving money with Payset is almost always free.

Benefit 3: Foreign Currency Exchange

With Payset, you can trade pounds sterling and euros for various foreign currencies. Our accounts support 38 different currencies.

You can spend your balance anywhere with our prepaid card, or you can convert your funds to other currencies with our built-in currency exchange.

Follow the link below to find out more or to register for an account.

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