Breadcrumb

What is a Payment Scheme

Written by

The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedNov 20223 min read

If you are taking digital payments of any kind, you are using a payment scheme. Up until very recently, there was a fairly limited choice of payment schemes in the UK. Over recent years, however, there has been a significant expansion of the available payment schemes. What’s more, this expansion appears to be ongoing.

What is a payment scheme?

A payment scheme, also known as a payment system, is a framework for processing payments. It consists of the necessary technical infrastructure plus a set of rules that service users must follow. Common payment schemes include payment cards, ewallets and buy now pay later payment schemes such as Klarna.

Payment schemes are run by organisations known as Payment System Operators (PSOs). Some PSOs contract directly with merchants. Others work through Payment System Providers (PSPs).

Payment schemes in the UK

A payment scheme in the UK fulfils the following basic criteria:

Provides a service that makes it possible to move money between parties, such as from customer to merchant or from one business to another.
Operates with a strictly prescribed governance structure. This includes the presence of independent directors with a responsibility to represent all service users, alongside other directors appointed directly from within the membership of the scheme.
Acts as a guardian of the rules and technical standards that apply to the operation of payment schemes.
Is responsible for the way in which the underlying payment schemes used by merchants and customers operate.
Complies with all the regulations that apply to the governance of payment schemes and systems.
Publishes an application process for anyone wishing to join and the standard criteria for accessing the scheme.

How a payment scheme operates

The rules and procedures set out by a payment scheme cover the steps to be taken to move funds from one bank to another, using a particular payment system and its infrastructure. Any organisation accessing a payment system, such as a merchant or payment service provider, is obliged to comply with its rules. The details likely to be covered by the payment scheme itself include the following:

Currency of the money being used
Timelines that payment service providers must meet when executing a transaction – e.g. whether a payment has to be made by a certain time in order to transfer on the same working day
Data formats used to exchange information between the banks

Payment schemes within the UK

BACS – this scheme oversees the payment system behind electronic transfers to a specific bank account. These are known as direct credits. It also collects payments that have been pre-authorised. These are known as direct debits.
The Belfast Bankers’ Clearing Company Limited (BBCCL) – this payment scheme deals with cheques and other paper payment methods in Northern Ireland.
CHAPS Clearing Company – CHAPS covers real-time, high-value payments that take place over the Real Time Gross Settlement system. It is operated by the Bank of England.
Cheque and Credit Clearing Company – this scheme oversees the processing of cheques and other forms of paper payment in England, Scotland and Wales
Faster Payments Scheme – this scheme enables real-time payments to take place online, over the telephone and via mobile banking apps. It also processes standing orders.
LINK Scheme – this scheme deals with the ability of end-users to access cash and other services through the UK network of ATM machines.
Paym – this scheme operates in partnership with Faster Payments or LINK. It allows individuals to connect their mobiles to their bank accounts. This makes it possible to route fund transfers using a mobile number rather than a sort code and account number. Paym is generally used for low-value transfers from individuals to other individuals or small businesses.

We Can Help

Using the right payment system can make a huge difference to your customers’ experience and your business’s efficiency. GoCardless is a payment gateway for the 21st century.

With paylinks, you can collect one-off payments quickly and easily. Funds can be confirmed immediately and are usually paid out by the next working day at the latest. Alternatively, you can choose to use regular Direct Debits to collect both ad hoc and recurring payments.

Direct Debits are a convenient and secure way to manage buy now pay later options such as instalment payments. You simply need to ask your customer for a one-time authorisation. Once you have this, you can set up a recurring payment in the GoCardless dashboard or a repeating invoice in your invoicing software.

You can choose to have this payment collected for a specified number of billing cycles (instalments) or have it continue indefinitely. Since GoCardless charges a customer’s bank account directly, it doesn’t matter if they change cards. Your payment will go ahead as usual.