How CHAPS Payments Operate

Susan Kelly

Oct 25, 2023

It is common practice for large wholesale transactions, such as the purchase of a home or the payment of down payment, to be settled using CHAPS, a sterling same-day system.

One of the world's largest high-value payment systems, CHAPS enables instant, settlement-risk-free, and irrevocable financial transactions. Over thirty financial institutions participate in CHAPS directly, and another five thousand use one of the direct participants to send and receive payments.

Why do we need CHAPS, exactly?

No maximum amount can be transferred using CHAPS, and same-day payment is guaranteed as long as payment instructions are received by a certain time in the working day (your Bank specifies the time).

CHAPS payments typically exceed £10,000, and because they are settled instantly, they are a great option for anyone who wants to make a sizable, time-sensitive transfer, such as putting down a significant down payment on a home, paying vendors on time, or completing a foreign currency transaction.

Which people utilize CHAPS?

High street banks and a handful of foreign and custodial banks are among CHAPS' direct participants. Additional financial establishments utilize the system through oblique means, such as paying direct members. Agent or correspondent banking describes this type of relationship.

The most common applications of CHAPS transfers are:

CHAPS is used to settle the money market and foreign currency transactions between financial institutions and some of the largest enterprises in the world.

Corporations use CHAPS to make high-value, time-sensitive payments, such as those to suppliers and taxes.

Housing and other property transactions are typically finalized through the use of CHAPS by lawyers and conveyancers.

People can utilize CHAPS to pay for large purchases like cars or down payments on houses.

In what way does CHAPS function?

All direct participants' payment obligations are met on the same day, individually, on a gross basis, in RTGS. Between the direct participants, the fund's transfer is final and cannot be reversed.

Time of business: Each business day, the CHAPS system launches at 6 a.m. All participants must be available to receive messages by 8 am and send out any messages by 10 am. Bank-to-bank transfers using CHAPS end at 6 pm. By 5:40 p.m., we must have received all customer payments.

Why are CHAPS transfers preferable, exactly?

Payment service providers' direct access to CHAPS enables them to offer their customers safe and efficient same-day, high-value payments. Payment amounts can be any amount between the lowest and the maximum.

The Bank's real-time gross settlement technology and the SWIFT messaging network provide a reliable foundation for its operations.

This model is best suited to a high-value payment system with the greatest potential systemic risk due to the elimination of settlement risk amongst direct participants in CHAPS at the expense of an increased need for liquidity.

A side door into CHAPS

Anyone curious about indirect access can find a list of Indirect Access ProvidersOpens in a new window and information about their services on the Access to Payments website.

The Price of Immediate Access to CHAPS

Costs associated with direct involvement in CHAPS include initial investments in infrastructure and training employees in CHAPS protocols and use. Participation costs, including fees and expenses; opportunity costs associated with posting collateral or keeping liquid assets; hardware and software maintenance; and increased staffing costs, are just some of the continuing expenditures that may be incurred.

Customers can make payments via CHAPS.

As part of a commercial and contractual agreement, indirect participants gain access to the CHAPS system via one of the Direct Participants. Direct Participants make and receive payments on behalf of Indirect Participants and other clients, including businesses and people.

Consultation Group on Strategic Issues

Our organization maintains a CHAPS Strategic Advisory Forum. A small, select group meets regularly with the Bank to discuss the future of CHAPS and offer suggestions and input. It meets four times a year under the leadership of Kevin Brown, one of the independent members of the CHAPS/RTGS Board.

All fourteen of the Forum's external members are seasoned C-suite executives with a firm grasp of the industry. The participants come from various backgrounds, including banking, other financial organizations, payment processing, and end-users. Membership is on an individual basis rather than as a representative of any particular group.

Client Interaction

We're dedicated to including users' perspectives in the CHAPS governance process. We recognize a broad and diverse community of stakeholders with varying interests. While the Strategic Advisory Forum plays an important function, it is important to note that the forum is one of many voices heard.

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