CHIPS, FedACH and TCHACH

Introduction to the payment system in the United States: The domestic payment system can be divided into three main dimensions: payment type (wholesale or retail), operator (central bank or private department) and settlement method (real-time or deferred). The United States is the largest payments market in the world, with many different public and private systems. The chart below provides a simple classification of the U.S. payment system to illustrate these three key dimensions.

Wholesale Payment Systems: At the center is Fedwire, the Federal Reserve’s real-time gross settlement (RTGS) system. Fedwire has nearly 6,000 direct participants, settling particularly urgent payments on behalf of participants and their corporate customers. CHIPS (originally Clearing House Interbank Payments System) is a privately operated system. It started operating as a deferred netting system (DNS) in 1974, but moved to a "hybrid" settlement model in 2001, with continuous matching and netting. CHIPS currently has approximately 45 direct participants and settles large-value international and domestic payments, including those related to commercial transactions, bank loans and securities transactions. The National Settlement Service (NNS) is a multilateral settlement service owned and operated by the Federal Reserve. NSS handles interbank liabilities arising from other retail payment and securities settlement systems on a net deferred basis.

Retail payment systems: FedACH and TCHACH provide clearing services for electronic loan transfers to retail customers, with final settlement completed on the following banking day. FedACH is operated by the Federal Reserve, while TCHACH is provided by the clearinghouse, a consortium of banks. The Federal Reserve provides check processing services to thrift institutions. Most checks received are settled within one working day. In the United States, credit card payments are processed by credit card payment networks (such as Visa, MasterCard, AmericanExpress, Discover). They are usually settled on a net basis, with a one to two day delay. Real-time payment is a fast payment service launched by the clearing house for retail payments. It was launched in November 2017. FedNow is a new project of the Federal Reserve that aims to provide 24/7 instant settlement services for retail payments. FedNow is expected to be operational in 2023 or 2024.