CHAPS, BACS, SWIFT and Faster Payments Explained

There are several different choices available if you need to make a local or international bank transfer from the UK. Most banks offer CHAPS, BACS, SWIFT and Faster Payments for their UK customers.

The payment types on offer are used for different purposes - if you’re sending some money to a friend overseas you’ll likely use the SWIFT network to process the payment, while an urgent, high value transfer, like paying for a new car in the UK, would go via CHAPS¹. If you feel like you need a dictionary to get to grips with the different payment types available, and why they matter, we have you covered.

Here’s everything you need to know.

What are CHAPS, BACS, SWIFT and Faster payments?

There are several different payment schemes in use in the UK, including CHAPS, BACS, SWIFT and Faster Payments. They're all used for different types of payments, and come with their own advantages and disadvantages. Here are some of the special features of each payment type.

CHAPS payment

The Clearing House Automated Payment System - CHAPS - has been in operation since 1984².

CHAPS payments are used for retail and wholesale, high value payments within the UK. Although there's no minimum payment limit, CHAPS payments are not generally used for low value transfers because they’re typically quite expensive to process².

CHAPS payments are usually worth over £10,000, and can be settled immediately, making them perfect for large, and critical transfers which have to be received right away - like paying a deposit on a house.

BACS payment

BACS stands for Banker’s Automated Clearing Services - and the BACS payment system has been in existence for 50 years already³.

BACS payments are used for bank transfers within the UK, including direct debits. Most people receive their salary from their employer via a BACS payment of some type, for example. Usually it takes a couple of days to receive a BACS payment, which can be up to the value of £20 million for retail clients¹.

Faster Payments

Faster Payments are available for bank to bank transfers within the UK, and - as the name suggests - are typically one of the quicker ways to move money between bank accounts. In most cases a Faster Payments transfer is processed in a matter of seconds. You could use this route to pay a friend if you owe them a small amount of money and want to get it to them quickly, for example. Faster payments have been available in the UK since 2008⁴.

23 banks and building societies currently offer this service, including Wise⁵, and they can each set their own transaction limits and charges. The maximum transaction limit set by the Faster Payments operator is £250,000¹.

SWIFT payment

The Society for Worldwide Interbank Financial Telecommunication - understandably shortened to SWIFT - is a network that allows banks to communicate financial information securely¹.

SWIFT payments are offered by most UK banks and building societies, for international money transfers, and involve a series of banks which work together to make sure your money ends up in the right place.

You can think of it like making a journey yourself. If there isn’t a direct flight to your destination, you might end up taking a series of connecting flights to get there. In the same way your SWIFT payment can end up being moved between 1 - 3 correspondent, or intermediary banks, before reaching your recipient. SWIFT payments are the most common choice for UK high street banks making international payments - but they’re not necessarily the cheapest or fastest option out there. More on that later.

What is the difference between the different payment methods?

Each of the different payment types has specific advantages and limits.

• SWIFT payments are used to make international bank transfers from the UK to accounts held abroad.
• Faster Payments are usually used for regular customers who need to transfer smaller amounts of money quickly within the UK.
• BACS payments are used for UK payments including direct debits and salaries, but take a little longer to process than Faster Payments.
• CHAPS payments are processed immediately, and used mainly when transferring amounts worth over £10,000, within the UK.

How much does a CHAPS, BACS, SWIFT or Faster payment cost?

The costs of using different payment methods varies quite widely. Usually the most expensive type of transfer is a SWIFT payment, used for making international bank transfers. This involves several banks working together, so as well as the upfront admin fee charged by your bank, you may also find that other intermediary banks - or the recipient’s own bank - add fees too. These are removed as the payment passes through the system, and can mean your recipient gets less than you expect.

With international payments, the exchange rate used is also important. Some banks add a markup to the real exchange rate, and keep the difference for themselves. This means you pay more than you have to. If you’re making an international payment and don’t think your bank is charging a fair fee, check out an alternative provider such as Wise, for international transfers at the real exchange rate with no hidden fees.

For payments within the UK, the costs vary depending on the type of payment. BACS payments are usually quite slow, but free or only a few pennies to process. Faster Payments may cost a little more, but are still cheap - and a lot quicker than BACS. CHAPS payments are more expensive again - but can be used for high volume, time critical payments, when it’s essential your money is received on the same working day.

*These costs can vary per bank, make sure to contact your bank to know the exact fees they charge.

How long do they take?

The range of different payment types available, for payments made both within the UK and internationally, can be confusing. Understanding the choices available to you can help make sure you get what you need - and don’t pay any more than you have to for your transfer.

Sources:
1.https://www.bacs.co.uk/documentlibrary/an_introduction_to_the_uks_interbank_payment_schemes.pdf
2.https://en.wikipedia.org/wiki/CHAPS
3.https://www.bacs.co.uk/About/Pages/About.aspx
4.http://www.fasterpayments.org.uk/about-us
5.http://www.fasterpayments.org.uk/directly-connected-participants
6.http://www.fasterpayments.org.uk/about-us/types-of-faster-payments
*All sources checked on November 19, 2018

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