Faster Payments limit increase shifts volume from CHAPS
A Bank of England working paper finds significant payment substitution from CHAPS to Faster Payments following the 2022 transaction limit increase. CHAPS volumes between £250,000 and £1 million are 10.7%–13.7% lower than expected.
CHAPS loses ground to instant payments
A Bank of England working paper provides strong empirical evidence of payment substitution from its high-value CHAPS scheme to the instant payment scheme, Faster Payments (FPS).
This shift occurred after FPS increased its transaction value limit from £250,000 to £1 million in February 2022, creating an alternative settlement route for payments in this range.
Researchers found that CHAPS volume for payments between £250,000 and £1 million is, on average, 10.7%–13.7% lower than if the FPS limit had not been raised.
The substitution effect was significantly greater for customer credit transfers, which saw a 16% reduction, compared to only a 7.1% drop for financial institution transfers.
Furthermore, lower-value payments within the affected range were more likely to migrate than those at the higher end.
RTGS vs. instant payments
The UK's payment landscape includes CHAPS, a high-value Real-Time Gross Settlement (RTGS) scheme operated by the Bank of England, and Faster Payments (FPS), a retail instant payment scheme.
CHAPS offers immediate settlement finality with no upper transaction limit, typically used for critical wholesale payments.
FPS provides instant fund availability to the end-user, but uses a net settlement model for interbank obligations.
The paper highlights key drivers for substitution: FPS's instant availability to end-users, its generally lower cost for both customers and participants, and differences in liquidity management requirements between the two schemes.
These factors influence user choice when multiple schemes can settle the same payment.
A clear market signal
This study provides crucial empirical evidence that instant payment schemes can meaningfully compete with established RTGS systems, confirming a long-suspected trend.
The observed substitution offers valuable insights for payment system operators and central banks, informing future tariff setting and resilient infrastructure design.
Policymakers must adapt to evolving payment dynamics, moving beyond traditional distinctions.