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What are CHAPS Payments?

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CHAPS stands for Clearing House Automated Payment System.

CHAPS is a payment system that allows for the transfer of large sums of money through a safe, secure bank-to-bank system.

Here's an overview of how CHAPS works:

  • CHAPS is a method for large money transfers.
  • Settlement occurs immediately, using Sterling Pounds as the denomination.
  • CHAPS Payments average £10,000.
  • CHAPS is considered safe and reliable so long as normal precautions are followed.
  • Processing fees for CHAPS are around £25-30.
  • CHAPS is most often used by larger corporations to pay suppliers.

CHAPS is used commonly with individuals that want to transfer large sums of money in a safe manner because the payment is settled immediately.

There is no limit to the amount of money you can send per transaction which makes it ideal for banks and larger businesses due to their volume of money needed for transfer.

CHAPS can be used for such things as financing, placing deposits on assets, etc.

On average, CHAPS payments are around £10,000.

Originally established in February of 1984 by the Bankers Clearing House, CHAPS is used exclusively for transferring the Sterling and is administered by the Bank of England.

The payment method is accepted by the Bank of England, Bank of Scotland, Barclays, JP Morgan Chase, and Santander amongst many others.

CHAPS also has a US equivalent called CHIPS proving that CHAPS is an effective form of money transfer for those who choose to send larger sums. 

How do I use CHAPS?

Typically, CHAPS will be used by larger companies as they send sums of money whose size warrants the safety and security of the CHAPS transfer.

A drawback of using a CHAPS is the inability to easily cancel payments once they have been sent.

If one does make a mistake with transferring money, it may be not possible to recall the funds successfully.

Moreover, CHAPS also requires you to send the money transfer within certain windows, opening at 6am on weekdays.

CHAPS is a more actively involved process than the standard forms of money transfers due to the high volume of money that is typically transferred.

Conversely, the cut-off time for each bank depends independently from bank to bank, and if the money is received after the cut off time, it will be processed at the start of the next day of processing.

Another drawback to using the CHAPS payment system is the relatively high fees for processing payments at around £25-30.

However, considering the lack of an upper limit for the amount of money that can be transferred, the fee can be negligible in instances where larger sums of money will be transferred.

The exact fee for CHAPS payments depends on the bank you are using for the transfer.

How does CHAPS compare with other payment methods?

CHAPS's counterpart, the Bankers Automated Payment System or BACS allows for the transfer of payments typically of smaller sums but takes three working days to complete a transfer, while CHAPS completes the transfer immediately.

The newly developed payment system, called Faster Payments, is another frequently used payment system that is similar to CHAPS and was developed by UK banks, and adopted in Hong Kong known as FPS.

Faster Payments is more commonly used digitally.

Faster Payments, however, has a maximum payment limit, so it is not fit for use by some groups such as banks or individuals who want to submit larger sums of payment.

Unlike CHAPS whose payment processing is considered instant, Faster Payments can take a number of hours. 

Although often considered a competitor or alternative to CHAPS, SWIFT or the Society for Worldwide Interbank Financial Telecommunication is actually used within the CHAPS system itself as a medium of communication.

However, the way in which SWIFT as a payment method differs from CHAPS is that CHAPS is exclusively used in Pounds Sterling and the banks that deal in the currency, while SWIFT is used to transfer different currencies not within the bounds of the UK exclusively.

How Does CHAPS Work?

  1. The customer requests to transfer a sum of money to their Payment Service Provider, or PSP, who then creates and submits a CHAPS payment to SWIFT to proceed with the CHAPS transfer.
  2. The CHAPS settlement request is then sent and run through the Real-Time Gross Settlement or RTGS system.
  3. While being run through the RTGS system, the debit from the first PSP on behalf of the individual who wants to send the money is sent to the second PSP who holds the credit line of the second account which will be receiving the money.
  4. Following the transfer from the first PSP to the second PSP, a settlement confirmation will be sent to both PSPs using the SWIFT system once again.
  5. Once the settlement confirmation is sent and if done successfully, the funds should be received on the end of the other account is managed by the second PSP.
  6. Following this, the second customer or account should receive credit in the sum of the payment amount into their account.

Important Notes About CHAPS

  • What makes CHAPS so efficient is the debit from the first account being transferred as credit to the second account.
  • Not everyone can be accepted for CHAPS as there is a list of requirements to be met including:
    1. Being in good standing with the bank,
    2. Having open accounts, and a
    3. Accepting the terms of service of both the bank and the CHAPS system itself.
  • For a bank to implement CHAPS into their systems, they must have the proper infrastructure to do so in order to handle such things as the fees required to set up CHAPS, as well as the costs of holding assets in a liquid form, and providing collateral.
  • Banks will be charged an annual participation fee.
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