CHAPS vs. BACS Payments: What's the Difference? (2024)

What are CHAPS and BACS Payments?

When you are making payments or wire transferring money in the UK, you may have come across the terms CHAPS or BACS payment, as these methods are commonly used for bank-to-bank payments in the UK.

For people outside of the UK, it is common to be unfamiliar with these terms.

Whether you have a business partner in the UK asking about BACS or CHAPS payments, recently opened a UK bank account, manage GBP with access to local systems like BACS or CHAPS, or are in any other situation, you've come to the right place for clarification.

In this article, we will cover what CHAPS and BACS payments are, discuss their differences and features, and help you determine which one is most suitable for your needs.

CHAPS payments are an electronic payment system used to transfer money from one bank account to another bank account in a different bank on the same day. It is the primary method used in the UK for time-sensitive and high-value payments, such as putting a downpayment on a house, making an urgent supplier payment, purchasing a car, or acquiring any other large assets.

The CHAPS system is regulated under the FSBRA or the Financial Services (Banking Reform) Act and overseen by the Bank of England.

According to UK Finance, 48 million CHAPS payments were processed in 2021, worth a total of 86 trillion pounds. In Q1 2024, 12.7 million CHAPS payments were processed. The biggest factor influencing the number and volume of CHAPS payments is the UK's economy.

CHAPS is an abbreviation of "Clearing House Automated Payment System."

BACS payments are electronic bank-to-bank transfers that allow individuals and businesses to move funds between bank accounts.

BACS payments are processed in batches and can take up to 3 - 5 working days to clear. They are commonly used for payroll, direct debits, and other regular payments, as well as for one-time transactions such as paying bills or making purchases.

According to Pay UK, the total BACS direct credit volumes in 2023 were 1.95 million. For direct debits, the total transaction was 4.8 million. Additionally, 1.665 billion BACS payments were processed during the first quarter of 2024.

BACS payments are generally considered a safe and reliable method of transferring funds, as they are backed by the UK's banking industry and regulated by the Financial Conduct Authority (FCA).

Tip: BACS stands for "Bankers Automated Clearing System"

The main difference is that CHAPS payments are faster but more expensive, typically preferred for high-value, critical transactions. On the other hand, BACS payments are slower and cheaper, commonly used for regular, smaller value transfers.

When deciding which payment method is the most suitable to use for sending money, it conclusively stirs toward the intention of the transfer with the consideration of these factors.

Tip: BACS and CHAPS are primarily used for domestic money transfers within the UK. For international transfers, consider telegraphic transfer or SWIFT payment methods.

In terms of transaction speed, CHAPS payments are a faster payment method because they are usually processed on the same day, as long as the request was initiated before the cut-off time.

On the other hand, BACS payments can take up to 3 to 5 business days to process. Funds are typically credited to the recipient's account on the clearing day.

CHAPS payments are the option for larger transfers. There is no maximum limit for CHAPS payments unless specific banks impose their own restrictions. In some cases, certain banks or financial institutions may require the use of CHAPS for transfers exceeding a specific threshold amount.

BACS payments are suitable for smaller sums of money. They can also be used to pay smaller amounts to multiple payees in batches or bulk, such as for payroll.

BACS has a maximum limit that varies by bank, typically ranging from GBP 100,000 to GBP 250,000 per unique transaction. Checking with your bank is necessary to find out the exact limit.

CHAPS is designed for high-value transactions typically sent to a single recipient.

On the other hand, a BACS transaction accommodates bulk payments, with each BACS capable of including multiple 'lines', each representing an individual payment, similar to how multiple items are listed on an invoice.

There's flexibility in the number of lines per transaction, as long as the payment amount is below the transaction limit.

BACS payments are the cheaper method of payment of the two as BACS transfer cost ranges from 10p to 50p (HKD 1.08 to 5.41) per transaction, and in some cases, banks may charge extra additional service fees.

To use BACS, you'll need to apply for an identification number called a SUN. Banks may charge a fee for this application.

In contrast, CHAPS payments are more expensive. You can expect to pay the range from GBP 15 to GBP 35 per transaction. Furthermore, not all banks provide the CHAPS service, and you may incur a fee to activate it.

Note: Fee structures may vary by institution.

The Bank of England stated that the CHAPS system is available from 6 am to 6 pm on weekdays, except for bank holidays in England and Wales. However, the actual availability of CHAPS services to customers varies between banks and is typically from 7 am to 5.30 pm.

The cut-off times for CHAPS transactions are generally 1 pm for telephone banking, 3 pm for in-person transactions, and 5 pm for online transactions. It is advisable to confirm the specific cut-off times with your bank.

BACS transactions are typically accepted between 7 am to 10:30 pm.

Once a CHAPS payment has been debited from your account, it cannot be changed or cancelled. If the payment is scheduled for a future date, you may be able to contact your bank to request cancellation.

In contrast, you have the chance to cancel a BACS payment after it has been debited. To do so, contact your bank at least one working day before the scheduled payment date. Your bank will require specific details to initiate the payment recall.

If you realise the error after this deadline, consult your bank and then contact the recipient directly. Always monitor your bank statement to confirm that the payment has been successfully halted.

CHAPS is closely supervised by the Bank of England and operates within a secure, restricted network limited to approved financial institutions. While partner institutions may assist in facilitating transfers, CHAPS transactions are processed directly between these approved banks, limiting potential entry points for unauthorised access. The system is regulated under the Financial Services (Banking Reform) Act (FSBRA).

On the other hand, BACS is managed by Pay.UK and meets strict security standards set by the Payments Systems Regulator (PSR). Individual financial institutions participating in BACS should be regulated by the Financial Conduct Authority (FCA).

Benefits

• Instant clearing and guaranteed same-day transfers, if initiated before the cut-off time
• Designed for high-value transactions. No upper limit.

Drawbacks

• Strict cut-off time
• Difficult to cancel
• Higher fees than other methods
• Not all banks offer CHAPS

To use CHAPS, begin by checking availability. Not all banks offer CHAPS, so contact your bank to confirm if they provide this service. Once confirmed, you’ll need to gather the recipient's bank details, including their name, account number, and sort code.

Typically, you can initiate a CHAPS payment using online banking, telephone banking, by post, or by visiting a branch, depending on your bank's policies.

Ensure your CHAPS payment is initiated during your bank's operating hours to guarantee same-day processing.

Note: It’s best to verify your bank’s specific CHAPS cut-off time, as payments are typically not processed after 3 pm.

Benefits

• Lower transaction fees compared to CHAPS and Faster Payments
• Efficient for processing multiple payments at once (e.g., salaries)

Drawbacks

• Not suitable for urgent payments
• Slower transfer speed
• A lower limit on transaction amount compared to CHAPS

To start using BACS for payments, begin by requesting a BACS Service User Number (SUN) from your bank. A SUN is a six-digit identifier used to facilitate and record transactions in the BACS payment system.

Next, initiate BACS payments through online banking, telephone banking, or by submitting a paper form to the bank.

You will need to gather the necessary details of the payee: their name, bank account number, sort code, and bank name. Depending on your bank's security measures, you may need to provide additional confirmation, such as a security code, to complete transactions securely.

BACS payments allow for multiple transactions to different recipients by adding separate lines for each transaction.

Note: Planning the payments in advance is crucial with BACS transactions to ensure timely processing.

To summarise, let's outline when to use CHAPS and when to use BACS.

Use CHAPS if

• You need the money to arrive on the same day. This is crucial for time-sensitive transactions, including property deposits and any urgent payments.
• You're transferring a high-value amount. CHAPS has no upper limit.
• The security and finality of the transfer are paramount. CHAPS offers guaranteed payments as long as the transaction is initiated before the cut-off time.
• You are a large business handling the money market and foreign exchange transactions.

Use BACS if

• You're making a regular payment. BACS is ideal for salaries, subscriptions, or recurring bills.
• You're transferring a low to medium amount. BACS is more cost-effective for smaller transactions.
• There's no urgency, and you can wait 2-5 business days for the transfer to clear.
• You need a cost-effective payment method.

Your business can use both methods. For instance, you might use BACS for regular payments to employees and CHAPS for larger, occasional payments.

You can also use other alternative methods, like FPS or cheque, as you see fit.

Faster Payments System (FPS) was introduced in 2008 as a new method of payment to replace the traditional BACS payment.

FPS is an electronic payment processing method that enables near-instantaneous payments amidst bank accounts, often completed within minutes or even seconds.

It allows individual payments of up to GBP 1 million. However, organisations offering this service may impose their own limits.

BACS, CHAPS, and the Faster Payment System dominate UK payment transactions.

It's important to ensure your business has an account that can easily send and receive payments.

If your business is registered in Hong Kong, Singapore, or the BVI and you need a solution to manage transactions in GBP and other foreign currencies, consider using Statrys.

Statrys is not a bank but a payment service provider that offers a multi-currency business account in Hong Kong. This account supports 11 currencies, including GBP, EUR, USD, HKD, and other major currencies.

Here is a summary of Statrys’ services.