SWIFT, SEPA, BACS, CHAPS, Faster Payments: What Do These Payment Terms Mean?
Moving money from A to B may sound straightforward, but payments are complex and demand high levels of security, particularly when international transactions are involved. That’s why the payments world is full of acronyms, abbreviations and technical terms. And with the growth of online payment systems and new payment service providers who can accept and make payments, the financial landscape is becoming even more complex and competitive.
Whether you’re a consumer buying a cup of coffee with a contactless card, a large corporate buying and selling internationally, or a small regional business such as a gift shop or a cafe, you’re likely to be using one or more of the following bank transfer methods: SWIFT for cross-border transactions; SEPA for euro-denominated transactions; and Bacs, CHAPS and Faster Payments for sterling transactions within the UK.
Let’s take a closer look at these payment infrastructures and the role they play in international and UK domestic payments.
Secure international transactions
Formed in 1973, SWIFT is the Society for Worldwide Interbank Financial Telecommunication, a global correspondent banking network that uses unique bank codes to make secure bank transfers to accounts in different countries.
What is a SWIFT code?
A SWIFT code, otherwise known as a Bank Identifier Code (BIC), is a set of characters that identifies a specific country, bank, branch and account. It’s a standardised messaging system that ensures that transactions reach their intended destinations. In other words, an ID for international transactions.
How do I make a SWIFT transfer?
When you enter a SWIFT code for an international transaction, you’ll be sending a secure message (ie, a payment instruction) from your bank to the receiving bank. The message allows the receiving bank to clear the amount from your account, which will take between three and five days. The SWIFT code is formed as follows: AAAA-BB-CC-DD (AAA=bank code, BB=country code, CC=location code, DDD=branch code). International payments via SWIFT are part of the bank and wire transfer services offered by Safenetpay.
How do I find my bank’s SWIFT code?
To find the right code for your bank, use a code checker.
Simplifying European payments
SEPA stands for Single Euro Payments Area. SEPA is a collaborative venture managed by the European Commission and the European Central Bank, and it facilitates credit transfers, direct debits, and card transactions. The aim is to make it simpler, cheaper and more efficient to send and receive euro payments across Europe. Covering more than 520 million people and handling more than 122 billion electronic payments per year, SEPA enables non-urgent euro payments to be sent like domestic transactions – without the charges normally associated with SWIFT payments.
What is a SEPA bank transfer?
A SEPA bank transfer is a euro-only transfer between banks in the European Union as well as Iceland, Norway, Switzerland, Liechtenstein, Monaco, San Marino and the UK (see below). SEPA payments take 1-2 business days to arrive in the beneficiary’s bank. There are two types of transfer: a SEPA credit Transfer, which is an electronic payment from one bank account to another, and a SEPA direct debit, which is an automated payment for things such as utility bills.
Is the UK still in SEPA?
Yes, although the UK has left the European Union, it’s been granted permission to remain a member of SEPA.
How do I make a SEPA payment?
Unlike with SWIFT, SEPA payments require only the name of the recipient and their IBAN (International Bank Account Number). With SWIFT, you also need the code for the recipient’s bank.
A long-established UK Payment system Bacs stands for Banker’s Automated Clearing Services and has been a pillar of UK payments since 1968. Despite its age, Bacs is still used for most high-volume, regular payments in the UK, and it’s the preferred choice for payments such as utility bills and salaries. Bacs payments are free for individuals, while businesses pay only modest fees. However, processing may take three working days, and most payment requests must be sent before 17:00 or they won’t be actioned until the next day.
Is Bacs the same as a bank transfer?
A Bacs direct credit is made from one bank account to another, so it’s the same as a bank transfer. But a Bacs payment can also be a direct debit, which is not the same as a bank transfer. With a direct debit, funds are pulled rather than transferred. A unique six-digit number known as a SUN (Service User Number) is used to identify a business paying or receiving money through a direct debit Bacs transaction.
Same-day UK payments
CHAPS (Clearing House Automated Payment System) has been part of the UK retail and wholesale marketplace since 1984. The service was introduced to speed up the processing of high-value transactions, with funds guaranteed to be received on the same day that they are sent.
Payment values and types
CHAPS payments are typically for sums of £10,00+, and are often used to make one-off payments for big-ticket items such as properties and vehicles. Although fast and efficient, CHAPS payments are not cheap. Some banks will charge up to £35 for a transaction, and a transaction can’t be revoked once it has been set in motion.
Payments in seconds Like CHAPS, Faster Payments is designed for speed. Launched in 2008, this bank-to-bank electronic transfer service made the UK a leader in payment innovation. Payments typically take less than two hours to clear, and sometimes only a matter of seconds. Unlike CHAPS, Faster Payments are available 24/7, plus the service is free. The upper limit for a transaction is £250,000, whereas there is no limit with CHAPS.
How do you make a payment? Faster Payments offer convenience as well as speed. There are many ways you can make Faster Payments, including via your bank’s website, on a banking app, by telephone, or in a bank branch.
The future of payments
Payment methods are continually evolving thanks to digital technology and the impact of open banking, and the future of UK retail payments will likely be shaped by a development called New Payments Architecture (NPA). This is a blueprint for modernising payment infrastructures and will eventually replace Bacs, Faster Payments and cheque and credit clearing services.
As the payment landscape changes, intermediaries such as Safenetpay play a valuable role in integrating payment methods and providing businesses with the means to pay and get paid both faster and more conveniently.
For more information on the current marketplace, see Safnetpay’s guide to online payment systems.