Clearing House Automated Payment System (CHAPS) in United Kingdom
The Clearing House Automated Payment System (CHAPS) is a sterling payments scheme that processes and settles both systemically important and time-dependent payments.
CHAPS continues to be one of the largest RTGS systems in the world, offering an efficient, risk-free and reliable same-day payments mechanism to meet the sterling RTGS payment requirements of its 19 Members. In addition, over 4500 financial institutions also make CHAPS payments and settle through agency arrangements with the direct Members.
CHAPS originally stood for Clearing House Automated Payment System, however nowadays it’s only referred to by its acronym. It is a same-day automated payment system for processing payments made within the UK. It is primarily used for very high value payments and is used by corporates who make large numbers of these payments but it can be used by individuals too, although there is normally a charge of £25 to £30.
What would I use this for?
The most common one is when buying property. Solicitors will use CHAPS payments to transfer the purchase price of a house between the bank accounts of those involved. It’s also sometimes used by people buying or selling a high-value item, such as a car, when they need a secure, urgent, same-day guaranteed payment.
The main benefit of CHAPS is that it is fast, as the money is transferred the same day. Banks themselves use CHAPS to move money around the financial system but there are several situations where individuals use it too.
How do I use it?
When you set up a CHAPS transfer you will normally need to visit a branch of your bank and take your bank card and a form of identification such as your driving licence.
Before making a CHAPS payment it is worthwhile checking your bank’s value limit for sending a Faster Payment as potentially payments of up to £100,000 can be sent via this payment system and if this system is an option it is likely to be cheaper or even free.
You will get a refund from your bank if you are an innocent victim of fraud.
Consumer protection providing immediate refund will apply if you are an innocent victim of fraud – your claim needs to be made within the 13 months of fraudulent transaction leaving your account. Payments require your authorisation in advance and your bank must tell you what information the payment will be processed on (e.g. account number and sort code). If you give the correct information and your payment goes astray your bank must make immediate efforts to trace the transaction and notify you of the outcome. In this case the transaction will be refunded. If you give incorrect information and the payment goes astray your bank must make ‘reasonable efforts’ to trace the transaction but may charge for doing so. However, they have no liability for getting the funds back. Claims must be made within 13 months. Once the money is in their account, it cannot be recalled without the recipeint’s consent.
CHAPS payments can be sent to most UK bank accounts and will arrive and can be drawn on the same day providing the funds are released before 3pm. It’s only used for Sterling transactions and payments are unconditional – once they’ve been made they can’t be recalled without the recipient’s consent. There are no limits either so CHAPS is typically used for high value payments.
The Sort Code Checker on the Payments Council website shows you whether the account you’re sending money to can receive the funds through CHAPS.
From the website:
The Clearing House Automated Payment System (CHAPS) is a sterling payments scheme that processes and settles both systemically important and time-dependent payments. The scheme is run by CHAPS Clearing Company, which manages day-to-day operations.
Launched on 9th February 1984, the CHAPS scheme provides a guaranteed same-day service for the bank-to-bank transmission of sterling-denominated payments. Since 1996, CHAPS has used an enhanced Real-Time Gross Settlement (RTGS) system where each individual payment is settled in real-time across its Members’ settlement accounts at the Bank of England.
CHAPS continues to be one of the largest RTGS systems in the world, offering an efficient, risk-free and reliable same-day payments mechanism to meet the sterling RTGS payment requirements of its 19 Members. In addition, over 4,500 financial institutions also make CHAPS payments and settle through agency arrangements with the direct Members. CHAPS is mainly used for high-value interbank and business-to-business payments, although individuals may also send CHAPS payments to buy or sell a high-value item, such as a house or car.
Nearly £72 trillion was processed through the system in 2012. As of July 2011 the total value processed since the start of CHAPS exceeded one quadrillion (£1,000,000,000,000,000) pounds.
The CHAPS Clearing Company Board works to maintain the integrity, efficiency and security of CHAPS payments as well as developing company strategy, identifying opportunities for innovation and continuing to extend its membership and reach.
Who uses the CHAPS System
A CHAPS payment is an electronic bank-to-bank same-day value payment made UK sterling, generally used for high-value interbank transactions.
CHAPS payments are fast, secure and efficient with the funds being transferred irrevocably the same day.
CHAPS is one of the largest Real-Time Gross Settlement (RTGS) systems in the world. Banks themselves use CHAPS to move money around the financial system, but it is also used regularly:
For delivery of domestic and international wholesale payments i.e. Money Market / Foreign Exchange (FX) transactions.
For business-to-business payments.
By solicitors / licensed conveyancers to transfer the purchase price of a house between the bank accounts of those involved.
By individuals buying or selling a high-value item, such as a house or car.
The Clearing House Automated Payment System or CHAPS is a British company established in London in 1984, which offers same-day sterling fund transfers.
A CHAPS transfer is initiated by the sender to move money to the recipient’s account (at another banking institution) where the funds need to be available (cleared) the same working day. Unlike with a bank giro credit, no pre-printed slip specifying the recipient’s details is required. Unlike cheques, the funds transfer is performed in real-time removing the issue of float or the potential for payments to be purposefully stopped by the sender, or returned due to insufficient funds, even after they appear to have arrived in the destination account.
CHAPS is used by 19 settlement banks including the Bank of England and over 400 sub-member financial institutions. In its first year of operation, average daily transactions numbered 7,000 with an annual value of 5 billion pounds sterling. In 2004, twenty years later, average daily transactions numbered 130,000 with an annual value of 300 billion pounds sterling. In 2010 there were 32 million CHAPS transactions totalling over £61 trillion, down from £73 trillion in 2008.
CHAPS used to offer euro fund transfers as a member of the EU-area settlement system TARGET, but this service closed on 16 May 2008. The total value of these in 2007 was £57 trillion.
As well as making transfers originated by banks themselves, CHAPS is frequently used by businesses for high-value payments to suppliers, and by solicitors and Licensed Conveyancers on behalf of individuals buying houses.
Costs and problems
CHAPS transfers are relatively expensive, with banks typically charging as much as £35 for a transfer. The cost of fast transfers and the slow speed of free transfers (such as BACS) is sometimes a subject of controversy in the UK, although low value transactions are now available from its Faster Payments Service.
Problems can arise from delays, e.g. when an exceptional workload at a bank results in the money being cleared too late in a working day to complete related transactions, or inadequate instructions, when a bank is not given sufficient information to know where to credit the money.
- Real Time Gross Settlement (RTGS)
- Payments Council
- Bankers’ clearing house