Banking Sector and Payments’ System in the UK

banking and payment systems UK

The banking sector in the United Kingdom started to operate in the 17th century when goldsmiths were taking deposits for safeguarding. There are more than 45 building societies and 300 banks in the UK, making it the biggest banking sector in Europe and the fourth largest in the world.

The Bank of England controls the issuance of banknotes in England and Wales, while the Royal Bank of Scotland Group provides banknotes for Scotland and Northern Ireland. The Bank of England also sets interest rate policies for the United Kingdom. A few clearing banks—which offer a range of financial services—dominate the banking system in England and Wales. In addition, the UK boasts the largest insurance industry in Europe and the world’s second-largest asset management industry (after the US).

Payment systems

The Bank of England has been acting as a settlement agent for payment systems since the 19th century, operating an RTGS system. It is important to know that since 2017 non-bank payment service providers (PIs and EMIs) can hold their own settlement accounts at the BoE that enables these PSPs to apply, for the first time, for direct access to the UK’s sterling payment systems settling in central bank’s currency, including Faster Payments, Bacs, CHAPS, LINK, and the new digital cheque clearing system.

BACS (Bankers Automated Clearing Services) is a payment system consisting of 24 direct participants and over five thousand financial institutions that make BACS as sponsored participants. Normally transactions which are processed through this system are settled within 3 working days. It is mostly free and is used mainly for not urgent credit or reoccurring debit transactions.

CHAPS (Clearing House Automated Payment System) is one of the largest high-value payment systems in the world, providing efficient, settlement risk-free and irrevocable payments. It supports the secure and efficient provision of same-day payments from payment service providers to their customers. There is no minimum or maximum payment limit and most transactions are typically settled within 2 hours. There are over 30 direct participants and over five thousand financial institutions that make CHAPS payments through one of the direct participants.

Faster Payments are electronic payments that can be made online, over the phone, in branch or through self-service kiosks. Payments are normally cleared in less than 2 hours providing both the sending and receiving banks are part of the Faster Payments Service. It works 24 hours per day, 7 days a week and 365 days per year. Faster Payments are restricted in size to a maximum of £250,000 and work well for small payments. It is faster than BACS but has a higher restriction on the amount which can be sent than CHAPS. It is operated by 10 UK banks and building societies.

Cheque & Credit Clearings a clearing system for paper-based payment instructions. Since October 2017 it has a developed a digital image-based clearing system, which enables digital images of cheques to be exchanged between banks and building societies across the whole of the UK for clearing and settlement. It is a prefunded system and settles on a next-day basis once a business day.

LINK is the UK’s largest cash machine network. Effectively every cash machine in the UK is connected to LINK, and LINK is the only way banks and building societies can offer their customers access to cash across the entire UK. All the UK’s main debit and ATM card issuers are LINK members.

Banking Sector

The biggest bank in the UK is HSBC holdings with headquarters in London, it employs around 85,000 individuals. The main fields in which it works are Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking. In 2018, HSBC reported total assets of EUR 2.29 trillion and reported net income of EUR 13.48 billion.

The second-largest bank in the UK is Barclays. The bank provides retail banking, credit cards, wholesale banking, investment banking, wealth management, and investment management services. As of 2017, total assets of the Barclay’s Group amounted to EUR 1.28 trillion and the net income amounted to EUR 25.33 billion.

The third-largest bank is Lloyds Banking Group (Bank of Scotland/Halifax­) it was created in 1695 and is headquartered in London. The bank employs around 70,000 individuals. It provides banking and financial services under the Lloyds Bank, Halifax, Bank of Scotland, and Scottish Widows brands to individual and business customers in the UK and abroad. It is one of the oldest operating banks in the UK. In 2018, the bank reported total assets of EUR 920 billion and posted a net income of EUR 23.91 billion.

The fourth-largest bank in the UK is Royal Bank of Scotland Group. It operates as one of the banks in the UK through Personal and Business Banking, Ulster Bank RoI, Commercial Banking, Private Banking, RBS International, NatWest Markets, Capital Resolution, Williams & Glyn, and Central Items and Other segments. In 2018, the bank reported total assets of EUR 751.44 billion and posted a net income of EUR 2.26 billion.

The fifth-largest bank in the UK is Standard Chartered PLC, which was founded in 1969 and is headquartered in London. It operates through Corporate and Institutional Banking, Retail Banking, Commercial Banking, and Private Banking segments. As of 2018, it operated 964 branches in the United Kingdom and 13 branches in the Isle of Man and the Channel Islands. In 2017, the bank’s total assets amounted to EUR 745.48 billion and net income reached EUR 1.2 billion.