What is a payment system?

BACS means Bankers Automated Clearing System and is a payment system that involves a money transfer from one bank to another. There are two types of BACS payments, namely, Direct Credits and the widely known Direct Debits payments. BACS payments typically take three working days to clear once the initial payment is initiated.

Direct Debits work by adding the payee’s banking information to a Direct Debit Mandate. This mandate authorises the payment from one account to another account and allows the funds to be processed by the provider, for example, an eCommerce store like a mobile phone provider, who will set up a Direct Debit instruction (at what time, the amount and frequency) on the payee’s account and debit the funds on the agreed date such as at the end of the month or quarter.

In the UK and in many other countries, all Direct Debits BACS payments are protected against numerical errors and instruction mistakes via the Direct Debit guarantee.

Direct Credit BACS payments are commonly known as bank transfers. This is when funds are deposited or transferred into your account either electronically online or in-store with cash. For example, when you’re paid by your employer, this normally happens via Direct Credit BACS payments. Just like Direct Debits, Direct Credits involve the payee giving the payer their banking information.

The Faster Payments Service (FPS) or commonly known as “Faster Payments” or the Faster Payments network or scheme, is a banking system in the UK created to make payment times between two or more accounts quicker. The Faster Payment Service was introduced to replace the CHAPS payment system, which concentrated on large-sum transactions. On the contrary, the FPS’s focus is to complete frequent low-sum payments instantaneously or, at worst, within a matter of hours, such as in an eCommerce store.

The Faster Payments Service can be for a variety of different electronic payments. These payments include single payments that occur in real-time, future payments, which are single online payments to be processed at a predetermined date in the future, and standing orders in which instruction and authorisation are given to a bank to make regular payments like monthly rent.

SEPA means Single European Payment Area and is a payment system allowing customers to make secure cashless credit transfers and direct debit euro payments to European Union (EU) countries and some non-EU members.

SEPA’s aim is to simplify payment methods within and across EU member countries. It works by unifying banking standards to allow for the direct debiting of every euro bank account within the SEPA area. The SEPA transfer process works just like any other domestic bank transfer so that bank account holders in two separate euro-using countries can send and receive funds just like a regular domestic transfer.

CHAPS means Clearing House Automated Payment System and is an electronic banking scheme designed to deliver same-day bank transfers for high-value transactions in pounds sterling in the UK.

The CHAPS network includes over 30 banks in addition to thousands of financial institutions such as remittance services and payment processors and gateways.

CHAPS was created in 1984 to improve on BACS payments which traditionally took up to three working days to clear. With CHAPS, electronic payments can be completed within the same business day as long as they are initiated by 3 pm.

CHAPS is usually used for speedy and secure, time-sensitive, and sometimes emergency payments. That’s why they are one of the most expensive transfers to make, often costing up to £50 per transaction. Examples of when a CHAPS payment may be necessary include large legal payments such as solicitor fees and property deposits.

The Image Clearing System (ICS) was introduced just a few years ago to speed up the cheque-clearing process. ICS allows images of cheques to be submitted by banks and individuals, making them easier and quicker to clear, group together, and release the funds.

As well as cheques, ICS can be used for other payment documents such as bankers’ drafts, postal orders, and travellers’ cheques. The ICS image-based system allows the cheque-clearing process to be quicker and offers a better all-around customer experience.

LINK is the national ATM network that connects most of the UK’s ATMs or cash machines to banks. LINK’s aim is to provide a safe way for UK banking consumers to access cash from anywhere in the world via their bank cards.

The LINK network is also responsible for setting the rules for cash machine operators who want their cash machines to be part of the UK ATM network, such as if and how much they can charge for cash withdrawals and daily card withdrawal limits. Additionally, LINK supervises all card issuers who want their cardholders to have access to the UK ATM card network.

SWIFT stands for The “Society for Worldwide Interbank Financial Telecommunication” and used to be a swift way of transferring money, especially overseas. That’s because when SWIFT was created in the 1970s, it was an innovative and speedy way of sending money to someone or a business (b2b) across borders, taking anywhere from a week to 10 days.

SWIFT is essentially a financial network that allows one bank to communicate with another quickly and safely. This communication involves sending financial information, money, and more. As technology advanced, SWIFT became less popular as newer, cheaper, and faster methods of transferring money were created.