Source: Chips
The Clearing House, the nation's premier bank-owned payments solutions provider and industry forum, today announced the 40th anniversary of CHIPS, the company's large dollar payments system. The only private-sector, real-time wire transfer network, CHIPS processes 350,000 payments daily with a value of $1.6 trillion.
"Since it went live on April 6, 1970, CHIPS has dramatically changed the landscape of payments systems and has become a critical part of the global economic infrastructure," said Rossana Salaris, SVP, Payments Products, The Clearing House. "What began as nine participants trading payments not in excess of $10,000 is now a network of 48 leading financial institutions representing 22 countries that is responsible for 95% of all international US dollar clearing."
The concept for CHIPS originated in 1966, when the Bank Operations Conference of the New York Clearing House Association (predecessor to The Clearing House) identified the need to provide a quicker and more efficient alternative to official checks used for interbank payments. As part of a feasibility study on automating such payments, a computer system test was performed to determine whether electronic signals could act as a proxy for the paper transfer of funds between banks. This successful experiment became the Clearing House Interbank Payments System or CHIPS.
Today, CHIPS is considered the most liquidity efficient wire transfer system in the world due to its unique, patented multilateral netting capability and pre-funding process. CHIPS maximizes the use of liquidity without daylight overdraft charges. A single dollar in the CHIPS system can clear $500 - $600 in payments over the course of the payments day. For participating financial institutions, this translates into streamlined operations and greater availability of funds for other cash management activities.
Evolving from a system of same day settlement combined with bilateral credit limits and sender net debit caps into a real-time netting process, CHIPS has also been very effective in reducing credit exposure and mitigating systemic risk.
"CHIPS is the industry standard for wire system liquidity, resiliency and operational efficiency in a wire transfer system and has been an important part of our customer value proposition since it was launched," said Frank Behlmer, Executive Vice President, Chief Operating Officer, Global Operations, BNY-Mellon.
As the business and regulatory environments evolve, The Clearing House remains focused on enhancing CHIPS to keep pace with the changing needs of the financial services industry. Last year, CHIPS worked with the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the Federal Reserve Banks to develop and implement a new cover payments message format intended to improve the transparency of international wire transfers and support the Treasury Department's anti-money laundering and anti-terrorist financing initiatives. In November 2010, CHIPS, along with The Federal Reserve's Fedwire, will introduce a 9,000 character remittance format that will enable structured invoice information to travel along with a wire payment. This augmented format will eliminate costly reconciliation processes and bring wire and ACH remittance standards in parity for the first time in history.
Additionally, in an increasingly global economy, CHIPS has significantly expanded its footprint to serve the needs of international banks. Today, Chinese financial institutions comprise the largest concentration of CHIPS participants outside the United States, with transactions to, from, or within Asia representing 41% of CHIPS volume.