British interbank payments service CHAPS (Clearing House Automated Payment System) experienced another glitch on Thursday, delaying many high-value, time-sensitive payments. Although the cause of the slowdown is not yet clear, it is not being treated as a hacking incident. However, it may give some businesses pause when considering how to send sizable payments.
Operated by the Bank of England since 2017, CHAPS is one of the largest high-value payment systems in the world. Some of its main functions include facilitating the settlement of money market and foreign exchange transactions for some of the UK’s largest financial institutions and businesses. Corporations also use CHAPS to issue time-sensitive and high value payments to suppliers, pay taxes, and even for soccer teams to buy players. Consumers can use CHAPS to purchase big-ticket items, such as a house or car.
The effects of a slowdown are much larger on business transactions than on consumer purchases.
“CHAPS is integral to businesses in the UK,” said Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research. “When you have glitches in systems like these, it highlights how beholden to those rails that businesses are. The payment options for business transactions of this size are relatively small.”
Overall, CHAPS handles roughly 200,000 payments every weekday, totaling £363 billion. Predominantly a payment highway for EU traffic, CHAPS lacks the extensive coverage of its rival SWIFT, which processes around 45 million transactions daily.
Technical Difficulties
The CHAPS system has suffered technical problems before. It was down for six hours last August, with no explanation from the BoE. In 2014, the Real-Time Gross Settlement system, which underpins CHAPS, suffered an outage that lasted for several hours.
“Despite assurances from the Bank that retail payment systems remain unaffected, the recurrence of such outages—three major incidents in the past decade—raises serious concerns about the infrastructure’s reliability,” said Ryta Zasiekina, founder of Latvia-based payments company CONCRYT. “The central bank’s ongoing efforts, including working closely with third-party suppliers and other authorities, are crucial, yet the persistent issues call for a more rigorous approach to contingency planning and crisis management.”
Indeed, one long-term effect of these outages could be that businesses start considering more reliable options.
“It shines the light on the disruptors that are evolving out there, like blockchain, which could replace some of the traffic on CHAPS or SWIFT,” said Bodine. “Credit card rails that can handle transactions of this size are now available in every country in the world, offering what could be larger destinations for more and more B2B traffic.”