The UK has over 500 financial institutions handling millions daily, enabled by payment schemes and centralised bodies setting rules for fund transfers. ClearBank’s guide details CHAPS, the UK’s real-time, high-value settlement system, ensuring same-day, irrevocable transfers between member banks.
The CHAPS system has been in operation since 1984. In its first year of operation, the system transmitted an average of 7,000 payments with a total value of around £5 billion. Since then, the number of CHAPS payments has grown significantly and in April 2024 alone, it processed 4.6 million payments worth £7.3 trillion over 21 settlement processing days.
What is CHAPS?
CHAPS is a same-day electronic bank-to-bank transfer system designed for high-value, time-critical payments. It provides rapid and secure money transfers between UK banks and has operated under the supervision of the Bank of England since 2017. CHAPS transactions are processed Monday – Friday (excluding bank holidays), and payments must be submitted by a specified cut-off time for same-day processing.
As the high-value payment scheme for the UK, CHAPS Payments are commonly used by consumers for higher-value transactions such as property purchases. Businesses and other Financial Institutions (FIs) use the service for business payments and large-scale financial transactions (bank-to-bank transfers). The same-day settlement system is crucial for time-sensitive payments and certainty of fate.
CHAPS is a secure service through rigorous authentication processes. Transactions are encrypted to protect sensitive financial information, ensuring a safe environment for high-value payments whilst maintaining the integrity of the data.
What types of businesses are using CHAPS?
CHAPS is accessed by 38 Direct Participants and many other financial institutions, companies and consumers via indirect access through their banks. To become and remain a CHAPS Direct Participant an organisation must meet a set of strict criteria and ensure they comply with all scheme rules. The CHAPS Direct Participant must regularly attest to the Bank of England that they are compliant with all CHAPS rules and requirements.
What about similar payment schemes?
Historically, CHAPS was the only option for sending higher-value payments. However, since 2022, payments up to the value of £1 million can now be sent via the Faster Payment System (FPS).
FPS is available 24/7, 365 days per year, and can transmit a payment within seconds, although it can take up to two hours to be visible if there is an issue with the payment. FPS is more suitable for lower-value, larger-volume transactions. It has three settlement cycles throughout the business day, but CHAPS settles in real time via the Real-Time Gross Settlement (RTGS) system. As a result, there is no settlement liquidity risk in CHAPS.
CHAPS on the other hand currently only operates on business days Monday – Friday excluding bank holidays within set operating hours and for the Bank of England this is 06:00 – 18:00. However, individual Financial Institutions will have their own operating hours within this window. While the costs are usually higher compared to FPS, CHAPS is routinely used because same-day settlement is crucial for certain transactions.
Key industry statistics
To give you an idea of the volumes and values of CHAPS, below are some Industry statistics.
- In 2023 CHAPS volumes grew by 0.5% to a record 51.1 million with an average of 203,759 payments per day. This totalled a value of £91.5 trillion which is an average of £364.4 billion per day.
- In April 2024, CHAPS processed 4.6 million payments worth £7.3 trillion over 21 settlement processing days. The average daily volume was 218,750 and the average daily value was £350 billion.
RTGS
In June 2023 there was a significant upgrade to the Real-Time Gross Settlement (RTGS) system. This introduced the global messaging standard ISO 20022, which was created to enhance the resilience of the system and provide innovation. It also aligns the UK with international payment systems and to date over 70 countries having already adopted the standard.
ISO 20022 benefits
Though CHAPS is one of the oldest UK payment schemes, it’s constantly evolving. The most recent example was its transition to the ISO 20022 standard in 2023.
ISO 20022 is a flexible standard for payments messaging that’s slowly being adopted worldwide with over 70 countries already supporting it. Creating a common global language for financial messaging improves interoperability between FIs, market infrastructures and other participants, and harmonises the international payment system.
On a functional level, it can adapt more easily than the old messaging standards. ClearBank built a new strategic architecture to support the transition rather than using a translation layer around existing systems, delivering API-based functionality that supports the enhanced data now available in CHAPS messages using the new ISO 20022 format.
The second phase of the RTGS upgrade is to deliver a new core settlement engine which is due to be delivered in Q4 of 2024. The new core settlement engine will provide immediate benefits including:
- Enhanced resilience and capacity
- Greater analytical capabilities
- The ability to accept CHAPS payments up to 10 days in advance
- Enhanced liquidity-saving mechanisms
- There will be also greater user functionality through a new user interface for RTGS (BERTI) and APIs
- Better customer experience
Its modular and flexible design will provide an excellent platform for future innovation.
It also offers benefits to individual firms through richer and higher-quality data, aiding straight-through processing and enhanced compliance and fraud detection.
However, the greatest benefits of ISO 20022 can only be realised if industry embraces it and uses the data. To support this, purpose codes and Legal Entity Identifiers (LEIs) will be mandated in specific CHAPS payments, and structured addresses and remittance data will also be delivered in future phases.
What are the benefits of connecting to CHAPS via ClearBank?
CHAPS is based on Real-Time Gross Settlement meaning money moves from one account to another on a near real-time basis, subject to checks and controls imposed by the banks in the payment chain leading to minimal settlement risk.
Financial institutions are increasingly turning to trusted Direct Participants (DPs) like ClearBank to connect to UK payment schemes. Rather than building and maintaining individual connections to each scheme, ClearBank takes the pressure off firms by delivering connectivity through a single API that unlocks access to different payment schemes.
With ClearBank, financial institutions can gain direct access to CHAPS, supporting secure, reliable and efficient provision of high value, same day payments, from payment service providers to their customers and there is no minimum or maximum payment limit.
ClearBank’s model saves valuable time, money and administrative work for financial institutions, freeing them to focus on developing their core products and services.