Most of us will only encounter CHAPS in one situation: a house purchase, unless we use it at work. That’s why the CHAPS payment volume only equates to 0.4% of all UK payments. And yet, the value of those payments adds to 91% of total transfers. It highlights that CHAPS is the antithesis of its ‘little and often’ more familiar sibling, BACS.
Whether you bank with Natwest or Nationwide, ensuring you know how the CHAPS payment system works is key. And if you’re looking to send a payment through CHAPS, learn how to secure your payments with Trustpair before pressing ‘send’ on these irreversible payments.
What is a CHAPS payment?
CHAPS stands for Clearing House Automated Payment System. It’s a same-day payments network which is typically used for single transactions above £10,000, but there is no upper limit. It’s therefore commonly used in house purchases or industrial trading.
CHAPS facilitates GBP to GBP transfers only, making it available to UK banks. Because of its same-day nature, it’s often used for time-sensitive transfers, which users pay a premium for. This is especially true in comparison to alternative payment methods because CHAPS is known as a high value payment system. However, this does mean that CHAPS are irrevocable; once the transfer process has started, it can’t be stopped.
Most UK bank or building society businesses facilitate sending money through CHAPS, including: HSBC UK bank plc Santander Uk plc (banco santander group) Lloyds banking group Danske bank group (also trading as Northern Bank limited: its UK subsidiary) Barclays bank uk plc National Westminster bank plc (NatWest) Clydesdale bank plc (Virgin Money) But not those based outside of the UK, such as Morgan Chase Bank.
How does CHAPS work?
To transfer money through the CHAPS system, you’ll have to physically head to your bank branch. Due to the high value of each payment, banks are required to perform due diligence to ensure that these near instant payments aren’t subject to fraud.
Here’s what happens when you make a CHAPS request:
- The bank will complete an ID check on the payer and perform Confirmation of Payee (CoP), which verifies the identity and account ownership of the receiver
- The payment request is sent through the SWIFT messaging network It debits from the payer’s bank and settles into the payee’s bank
- Once the payee’s bank receives the payment, it’s settled into the correct bank account
- The request is ‘settled’ through SWIFT messaging, closing the process
When are CHAPS payments most commonly used?
For businesses, CHAPS is often used to settle foreign exchange transactions (FX) and investments. However, it’s also common to pay suppliers through CHAPS, especially for large transactions. Plus, as companies are approaching their payment deadline, they may need the funds to arrive quickly in order to preserve the relationship.
Workers in the property industry are likely to be the most familiar with CHAPS, because solicitors and conveyancers use it during completion. House purchases tend to complete and exchange on the same day, which leverages the same-day payment speed of CHAPS to its full capacity.
Finally individuals may also use CHAPS to transfer funds for high-value items such as vehicles, art, watches, gold or other assets.
How long does a CHAPS transfer take?
CHAPS payments are guaranteed to arrive on the same day as long as the sender meets the bank’s cut off time. This is typically around 4.25pm, but if the payer and payee share the same bank, then the cutoff can be as late as 5.40pm.
CHAPS opening hours are between 6am and 6pm Monday to Friday, excluding Bank Holidays. So if you do miss the cutoff time, you can expect your payment to be within the first batch on the next working day, which should be settled by 10am.
Pros and cons of CHAPS payments sys
CHAPS can be advantageous, but it’s not the most suitable payment method for every purchase.
| Advantages | Disadvantages |
|---|---|
| Speed: CHAPS are guaranteed to settle within the same working day | Cut off times: If payments are submitted after the daily cut off times, which vary between banks, they will not arrive until the next working day |
| Security: CHAPS is overseen by the Bank of England, following ISO 20222 security measures, although no system is completely impenetrable | Security: Human error is a significant risk considering the irreversible nature of CHAPS transactions, and phishing scammers or malware attackers can target users. Fortunately, Trustpair works with businesses to secure the entire payment chain by maintaining real-time account data validation before each and every payment leaves the account. |
| Number of supporting institutions: there are 35 different financial institutions, and thousands of bank branches to submit a CHAPS payment from | UK-only: CHAPS participants must be based in the UK and are limited to GBP transfers, making cross-border transfers not possible |
| No upper limit: CHAPS fund transfers are theoretically unlimited, unlike alternative payment methods which may cap off at £10,000 | Cost: the CHAPS scheme can cost the sender between £17 (HSBC and First Direct) to £30 (Lloyds, TSB and Virgin Money). This makes CHAPS unsuitable for small or frequent payments |
| Certainty of payment: due to the irrevocable nature and CoP, CHAPS are guaranteed to hit their target account | Irrevocable nature: once a CHAPS payment begins processing, it cannot be reversed |
Alternatives to CHAPS payments
Two very common alternatives to make a CHAPS payment are Faster Payments and BACS.
Faster Payments
Faster Payments are much quicker than CHAPS, which can work within seconds, but almost always within 2 hours. They’re commonly used for small, everyday payments like transferring a friend or paying bills, and can be used in standing orders. They can be made online.
The Faster Payments network is usually free to use. There is an upper limit of £1 million per transaction. Banks typically lower this in practice to between £25,000 and £250,000 to reduce their own risk.
BACS
BACS is like the opposite to CHAPS. It can take up to three working days to clear each payment, and they’re very cheap to send, becoming much more cost-effective than CHAPS. For this reason, businesses tend to send batch payments or bulk payments through BACS. It’s therefore used for payments like salaries, supplier payments or direct debits for bills and subscriptions.
Secure your CHAPS payments with confidence
CHAPS is a same-day payments network for high-value payments, used by businesses to pay suppliers or large bills, and by individuals to purchase property or other assets. CHAPS are irrevocable, so senders must be sure before they initiate a transfer. Using Trustpair to validate the details of the payee can protect the entire payment chain against fraud.
