Any merchant making use of payment systems, such as credit and debit cards, banks transfers and buy now pay later options such as Klarna, rely on the existence of a payment scheme. That’s because a payment scheme, in simple terms, is a body that creates and oversees the rules and technical details governing the payment systems used.
As well as the basic framework that payment system providers have to adhere to, payment schemes manage the ongoing operation of the payment systems, ensuring that all parties can trust the systems they rely on.
Payment schemes in the UK
A payment scheme in the UK fulfils the following basic criteria:
It provides a service that makes it possible to move money between parties, such as from customer to merchant or from one business to another.
It 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.
It will act as a guardian of the rules and technical standards that apply to the operation of payment schemes.
It will be responsible for the way in which the underlying payment schemes used by merchants and customers operate.
It will comply with all of the regulations that apply to the governance of payment schemes and systems.
It will publish 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 that need 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:
The currency of the money being used
The timelines that payment service providers must meet when executing a transaction – i.e. whether a payment has to be made by a certain time in order to transfer on the same working day
The 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, known as direct credits, and the collection of payments that have been pre-authorised, 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 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, in addition to via 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