Substitution between RTGS and instant payment schemes: the impact of the 2022 Faster Payments transaction limit increase on CHAPS

By James Duffy and James Sanders

In February 2022, the UK’s instant payment scheme, Faster Payments, increased its transaction value limit from £250,000 to £1 million. This provided payments in this value range an alternative means to settle. Using a range of methodologies, we study the subsequent impact on the number of payments settled through CHAPS, the UK’s high-value payment scheme that settles payments on a real-time gross basis. We find strong evidence of substitution away from CHAPS to Faster Payments. Specifically, CHAPS volume between £250,000 and £1 million is, on average, between 10.7%–13.7% lower than if Faster Payments had not increased their transaction limit. Furthermore, we find substitution is far greater for customer credit transfers and lower-value payments. These results provide some of the first clear empirical evidence of meaningful substitution from real-time gross settlement schemes to instant payment schemes, raising important implications for payment system operators and the future role of different settlement models.

Substitution between RTGS and instant payment schemes: the impact of the 2022 Faster Payments transaction limit increase on CHAPS