Different Ways to Pay – Bacs, CHAPS and Faster Payments

The use of cash, cheques, debit cards and credit cards to make payments is common knowledge to almost everyone in today’s society. Barely anyone thinks twice about handing over a handful of cash to pay for a newspaper and a packet of crisps or using their credit card to buy a new pair of shoes. There are however, other methods of payment that may give people pause for thought. The definition and distinction between Bacs, CHAPS and Faster Payments may bemuse and confuse some people as they are not something they encounter (or think they encounter) in day-to-day life. This article aims to provide a brief overview and explanation of what these payment methods are and how they are used.

It is likely that some people believe that they have never been on the end of a Bacs payment – however, it is probable that they are wrong. Bacs payment initially stood for ‘Bankers’ Automated Clearing Services’ and was set up in the late 1960s by Dennis Gladwell as a way of transferring funds between banks whilst avoiding the need for paper documents. The Bacs system is generally used nowadays to make Direct Debit or Direct Credit payments. It was also used to make payments for phone or internet banking but this feature has since been replaced by ‘Faster Payments’. The Bacs system is commonly used by companies to make payments such as employees’ wages and salaries, pensions and state benefits – but it is also used by individuals. The Bacs system is very secure but takes three working days to go through.

CHAPS payments or ‘Clearing House Automated Payment System’ is similar to a Bacs payment as it deals with the transfer of funds. The main difference between the two methods of moving money is the fact that with a CHAPS transfer the money can be moved within the same day. There is usually a charge of around £30 to use a CHAPS transfer and as a result they tend to be primarily used to make high value transfers or by big corporations. Some of the main users of CHAPS are the banks themselves; they use them to move money around their systems. For individuals, CHAPS transfers are usually used to hand over funds for the payment on a house. The system is run by a company of the same name that started in 1984 in London.

Faster Payments are again another way of transferring funds but can be done instantaneously. The system was launched on the 24th May with nine banks and one building society signing up initially to use the service. The Faster Payments service does have limit on how much money that can be transferred that varies between providers. Some of the limits offered go up to £100,000 so people who are thinking of making a large payment through CHAPS may want to investigate whether they can do it through Faster Payments as this service is usually free. As mentioned above, due to the speedy nature of the transfers, the Faster Payments service has completely taken over the handling of internet and telephone payments from Bacs after a change in the law. The Faster Payments service is also popular with people who want to make other smaller payments such as paying bills to tradesmen or transferring money to friends and family. The system is expected to grow rapidly in popularity and is designed to handle up to ten million transactions.

These three methods of transferring funds can appear to be fairly similar but in reality are used for different types of payment. If you are thinking of making a payment or transferring some funds you may want to look into which type of process would be best for what you want to do.

© Izzy Evans 2012

If you would like to find out more about the different types of payments available to you and how to use them securely you can visit Bacs Payment, CHAPS or Faster Payments.