The UK payment landscape is changing fast. With innovative technologies creating new opportunities and regulation in a constant state of transition, there has never been more instability in the sector. With that being said, at this moment in time, there are still only 4 principal options used for bank transfers in the UK. These are Bacs, CHAPS, Faster Payments and SWIFT payments.
What is Bacs?
Bacs stands for ‘Banker’s Automated Clearing Services’ and has been widely used across the UK since its introduction in 1968. Bacs is regularly used for direct debit payments and its direct credit service is commonly employed by businesses to pay their workers. Bacs payments typically clear within two working days and are considered to be one of the slowest payment methods in the UK.
As the most common form of payment in the UK, Bacs is considered the default standard in the commercial world. This is largely due to its low cost; as the cheapest form of payment available, most businesses are happy to save money and accept the slower payment time.
What are Faster Payments?
Faster Payments is a relatively new option in the payments sector. Debuting in 2008, the Faster Payments scheme has positioned the UK as a payment innovator on a global scale. Designed specifically to speed up the payment process for cash-flow challenged retailers, Faster Payments typically take less than 2 hours to clear, and often significantly less time; for example, Modulr’s service level agreement sees 99% of Faster Payments delivered in less than 90 seconds. Extending beyond retail, Faster Payments are regularly used across multiple industries and are offered by over 30 financial institutions.
With 24/7 availability, Faster Payments are considered to be the most convenient form of payment in the UK, they are priced higher than Bacs.
What is CHAPS?
The Clearing House Automated Payment System, commonly referred to as CHAPS, has been in use in the UK since 1984. Introduced specifically for large payments in the retail and wholesale market, most CHAPS payments are above £10,000, with no upper limit.
CHAPS payments typically take up to 1 working day to clear, but many are settled on the same day if the bank receives instructions before 2PM.
What are SWIFT Payments?
The Society for Worldwide Interbank Financial Telecommunication, also known as SWIFT, is a payment network system designed to allow UK consumers to make secure bank transfers to accounts in different countries.
The SWIFT payments system works through correspondent banking, allowing a payment to move across jurisdictions via a network of trusted intermediaries. Due to the complex nature of these payments, they typically take 3-5 days to clear.
The future of UK payments
While these payment options currently form the basis of the UK’s payment infrastructure, this is set to evolve in the near future. With the development of New Payments Architecture (NPA), a long-term strategic blueprint for the UK’s retail payments infrastructure, it’s likely they will all eventually be replaced. The NPA, designed to be fully deployed by 2030 will open up the payments sector, enabling challengers and innovators to offer their own payment services.
Over the next decade, the payments sector is likely to see greater change than ever before as the fintech revolution drives innovative services. These offerings will radically change the landscape and create new opportunities for organisations looking to develop competitive advantages through payments.
Get critical insight into the upcoming payment revolution, download our 2020 Guide to UK Payments here.