Saturday, August 26, 2017

What are BACS, CHAPS and FPS?

They are all payment related systems in use in the UK. So, what's the difference between BACS, CHAPS and FPS?

BACS (Banker's Automated Clearing Service) is the slowest and the oldest of other "automated" payment systems; it's an electronic system to make payments directly from one bank account to another, partially replacing former payment systems such as cash and cheques. The payments go through a central authority, which happens to be be Bacs Payment Schemes Limited. It usually takes 3 days to clear a payment made through BACS.

The Direct Debit system in the UK is based on BACS. Employee wages are also usually sent via BACS by employers.

CHAPS guarantees same-day payments, as long as the instructions are received before 2:30pm on that day. Since this is much faster than BACS, there is a payment processing fee of £25. The network is managed by a company called The Clearing House Automated Payment System.

These days, after the introduction of FSPS (see below), CHAPS usage is mostly limited to high value transactions, such as purchasing a house.

FPS (Faster Payments Systems) was introduced in 2008, promising much faster payment processing as compared to CHAPS; the usual processing time is less than 2-hours, often instantaneous, and there is no processing fee for personal accounts. However, the originator and the beneficiary bank accounts need to be part of the FPS network.

Faster Payments is available 24x7. However, there is an upper limit on the amount that can be transferred in a single transaction via Faster Payments, which happens to be £250,000.