The collapse of CHAPS?
Reliability, confidence and security are qualities that we expect from the UK payments infrastructure. However, these qualities were called into question in October 2014 when the Clearing House Automated Payment System (CHAPS) crashed, making negative headlines for the Bank of England which presides over the CHAPS transfer scheme.
CHAPS is a key part of the UK financial system: in 2014 CHAPS processed 93% of domestic transfers by value and the average CHAPS payment was around £2Million in size. The CHAPS transfer, which typically costs between £25 and £30, has long been regarded as the most reliable way to make large domestic funds transfers in the UK.
The CHAPS system normally processes electronic funds transfers on a same-day basis, but on 20 October 2014 it crashed for 10 hours resulting in delays to 143,000 payments and endangering thousands of property sales across the UK. The October systems crash has raised an important question: is there a more reliable and cost effective alternative to CHAPS?
BACS…to the future
An alternative means of processing funds transfers within the UK is the Bankers Automated Clearing Services (BACS) scheme which has been in existence for over 40 years. It can take up to three days for BACS payments to clear; payments are entered on the first day, processed on the second and cleared on the third. This system has been criticized as slow by consumers and institutions and it was seen as sub-standard when compared to the infrastructure in place in other countries across the world. However BACS payments are considerably cheaper than CHAPS payments and BACS was the standard method for domestic transfers until the introduction of Faster Payments in 2008. Businesses still use the BACS system to process direct debit payments and direct credit payments; however ordinary bank-to-bank transfers can now be processed same day by using the Faster Payments Service
The Faster Payments Service
The Faster Payment Service (FPS) is seen as combining the speed of CHAPS payments with the cost efficiency of BACS. The FPS fulfils the EU requirement that all internet, phone, and standing order payments must be processed by the end of the next business day and it has enabled the growth of consumer transfer products like Barclays Pingit. Since its launch in 2008 FPS has decreased payment times between banks to hours rather than days, at little more than the cost of a BACS payment. Most UK retail banks now provide Faster Payments and they typically allow personal customers to use FPS for free. The value limit for FPS payments is currently fixed at £100,000, with some banks setting a lower limit for their customers. FPS is now used to process most small payments and it is speculated that FPS would attract a large amount of CHAPS business if the FPS payment limit were to be raised above £100,000.
Domestic and international payment solutions
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