CHAPS Payment: All Questions Answered in Details
CHAPS (Clearing House Automated Payment System) is a high-value, bank-to-bank system of payment that offers irreversible, no-risk settlement, and quick transactions. Today we will find out all that you need to know about CHAPS payment.
Meaning of CHAPS Payment
CHAPS is a pound sterling same-day settlement system and finds application in sending high-value commercial payments as well as time-sensitive, low-value payments such as purchasing or paying a mortgage on a home. In November 2017, the Bank of England assumed responsibility for the CHAPS system. Let’s find out more about CHAPS payment – what it is, how it works, and who benefits from it.
What Is CHAPS Payment?
CHAPS is an acronym for Clearing House Automated Payment System. When you send money from one bank to another, it goes across the SWIFT network. This option is for high-value transactions that must be sent or received the very same day.
Buying new vehicles, purchasing a new property to develop, or paying taxes are examples of high-value or one-time expenditures. The minimum payment transaction amount using CHAPS is £10,000, even though there are no transaction limits. There is also no maximum transfer amount, so you can move £100,000 if necessary.
You can initiate and receive CHAPS transfers at over 5,000 banking firms and 30 direct commercial bank operators. It makes moving money as simple as possible, particularly for same-day payments, thanks to its extensive network.
How Does CHAPS Work?
The sender initiates a CHAPS transaction to move money to the account of the person who has an account in some other major bank, in which the funds must be available (settled) the same business day. But unlike bank giro credit, there is no need for a pre-printed document with the participant's information. Unlike cheques, the transaction is completed in actual time, eliminating float and the risk of payments being intentionally halted or returned owing to inadequate funds. Even though the funds seem to have reached their destination account, this can happen.
CHAPS is employed by nearly 4,500 secondary parties who execute transactions through agency relationships with direct involvement from banks, including the Bank of England.
The current average trades in the first year of existence were 7,000, with an annual total volume of £5 billion. In 2004, 20 years later, there were 130,000 estimated average daily transactions, worth £300 billion annually. In 2010, 32 million CHAPS payments were recorded, totaling approximately £61 trillion, dropping from £73 trillion in 2008. As a part of the EU-area payment network TARGET, CHAPS used to enable euro fund transfers, however, this operation was discontinued on May 16, 2008.  In 2007, the net value of which was £57 trillion.
CHAPS is often used by corporations for high-value trade payments, by lending institutions granting extensions, and by attorneys and solicitors on behalf of clients buying property, in addition to making transactions initiated by banks.
Who Uses CHAPS?
Typical high banks, as well as several major and custody banks, are direct players in CHAPS. Several more banking institutions have indirect access to the network and transfer funds to direct participants. It is referred to as correspondent banking as well as agency banking.
CHAPS transfers are used for a range of functions:
CHAPS is a money market and Forex settlement system used by banking institutions and even some of the world's largest corporations.
CHAPS is used by businesses to make high-value, time-sensitive transactions, such as to service providers or to taxes.
Advisors and solicitors regularly utilize CHAPS to finalize property and other real estate deals.
Individuals can use CHAPS to pay for expensive purchases like a car or a down payment on a home.
What Are Requirements for CHAPS?
The CHAPS payment processing flow is shown below.
1. Payment communications are exchanged between Direct Participants.
2. The communications are held in SWIFT FIN Copy until the Bank's RTGS system confirms resolution.
3. Once the transaction has been cleared in RTGS, the sending Direct Participant receives a verification and the whole transaction message is delivered to the recipient Direct Participant. When the payment is received, the transaction is complete.
4. The transaction is processed as needed by the recipient Direct Participant.
The Bank is the CHAPS system's payment processing administrator and main information infrastructure. The Bank, as the payment service provider, is accountable for the CHAPS payment system's main commercial and operational activities.
What Is the Cost of CHAPS?
One-time set-up expenses, including developing the appropriate hardware, software, and protocols to link to CHAPS and developing sufficient competence within personnel, are included in the expense of direct participation in CHAPS. They also can incur considerable recurring costs, including fees and other membership charges, opportunity costs, and cost of delivering collateral or retaining cash assets, hardware/software upkeep, and increased employee costs.
Direct Participants pay CHAPS Scheme fees in the form of an annual participation fee and a per-item fee. The Bank of England does not charge a registration fee, but they may be able to collect some costs from Direct Participants, such as independent legal expenses.
CHAPS, Bacs, and Faster Payments: What’s the Difference?
CHAPS is a payments system designed for high-value as well as time-sensitive transactions. Paying a property mortgage or buying a new, substantial business asset are examples of this. Furthermore, CHAPS enables you to make such high-value transfers quickly, frequently on the same day.
BACS, on the other hand, is intended for routine transactions. These are usually recurring payments, such as paying your vendors or employees' salaries by direct debit.
Apart from the net amount you can send and the clearance delays, BACS transactions are substantially less expensive. Your local bank may levy extra charges for every operation, however, you should not expect to pay over £1 per money transfer.
I hope this guide answers all your questions about the CHAPS payment network.
How long does a CHAPS transfer take?
A CHAPS payment is received the same day if it is cleared by the bank's cut-off time.
Do CHAPS payments clear immediately?
In most cases, CHAPS payments are processed immediately, but in all cases, they are processed the same day.
Why do banks charge for CHAPS payments?
Charges range from $15 to $30 per transaction.
What is the CHAPS payment limit?
There is no maximum payment limit. The minimum requirement is £10,000.