Clearing describes the process that a transaction goes through before it’s settled. For example, turning an electronic payment request (a promise of payment) into an actual payment where money has moved from one account to another. 

A clearing bank is authorised to move money between financial institutions and individuals by using the UK payment schemes, including Faster Payment System (FPS), CHAPS, and Bacs. In other words, a Clearing bank settles transactions by turning the promise of payment (an electronic payment request, for example) into actual payment by moving money from one account to another. 

A payment scheme is a body that sets out the rules for how money moves from one party to another – between two businesses, for example. These rules cover the steps that need to be taken as well as the payment system and infrastructure that needs to be used to settle transactions. A payment scheme not only creates these rules but also acts as their guardian, taking responsibility for overseeing them. 

The UK payment schemes are: 

• Faster Payment System (FPS) 
• Bacs 
• CHAPS 
• Cheque and Credit Clearing 

The Faster Payment System (FPS), often referred to simply as ‘Faster Payments’ is the UK payment scheme which allows for electronic payments to be sent and received in real-time between participating banks, building societies or payment institutions. They’re what most end customers consider everyday transactions. You can read more about FPS here. 

ClearBank’s Faster Payments limit is £1,000,000, for both inbound and outbound payments.  

CHAPS, which stands for Clearing House Automated Payment System, is a UK payment scheme that tends to be used for high-value payments. Most people think of CHAPS payments as regular bank transfers, where money is moved from one bank account to another on the same day.  

CHAPS guarantees same-day payments if the payment instruction is received by a certain time (specified by the relevant bank) on a working day. Unlike Faster Payments, there’s no limit on how much money you can transfer using CHAPS. You can read more about CHAPS here. 

Bacs, which stands for Bankers’ Automated Clearing System, provides bank-to-bank transfers that can take up to three days to go through. There’s no limit on how much money can be transferred via Bacs although this payment scheme tends to be used for recurring payments. There are two main types of Bacs payments: 

• Direct Debit: where you give prior permission for money to be taken out of your bank account, to pay a regular bill for example.
• Direct Credit: where money is deposited into your bank account, your monthly salary for example. 

You can read more about Bacs here. 

The eurozone payment schemes are: 

• SEPA Credit Transfer 
• SEPA Instant Credit Transfer 
• T2 (Target2) 

The SEPA Credit Transfer (SCT) scheme makes domestic and cross-border payments within the SEPA zone easy and convenient. SCT transactions are the most common method for sending euros intra-Europe, ensuring consistent rules regardless of the location of the accounts involved. 

SCT transactions can be used for one-off and recurring payments, as well as single or bulk transactions, making them a convenient option for both individuals, businesses and public administrations. Transactions are paid in full, with no deductions and have a maximum transaction value of €999,999,999. 

The SEPA Instant Credit Transfer, often referred to as SEPA Instant, supports euro payments between any SEPA countries, using a single bank account and a single set of payment instruments. Transactions are uniform under the ISO20022 standard enabling consistency, coherence and efficiency. With SEPA Instant, payments up to the value of €100,000 are usually settled within 10 seconds of submission, and are available 24 hours a day, 365 days a year. 

T2 is the real-time gross settlement (RTGS) system for high-value euro payments, owned and operated by the Eurosystem, the monetary authority of the eurozone. 

Central and commercial banks can submit payment orders in euro to T2, where they are processed and settled in central bank money, i.e., money held in an account with a central bank, minimising system risk in the euro payments market. 

More than 1,700 banks use T2 to initiate transactions in euros, either on their own behalf or on behalf of their customers. You can read more about T2 here.