GLOBAL PAYMENTS KNOWLEDGEISO 20022 / SWIFT / SEPA / MT / MX
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A CHIPS payment (netting then settlement)

A dollar payment is released against running net positions during the day and is final once released. Only the leftover net balances settle across Fedwire at the close — far less cash than paying each one gross.

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Contributor Shubham Mathure

STEP 1 / 7MESSAGE

The originator requests a payment

Originator (payer) → Bank Alfa (sending participant)

A corporate treasury asks Bank Alfa to pay a beneficiary at another CHIPS participant. Bank Alfa validates and screens it before submitting.

Step 1 of 7: The originator requests a payment

  1. 01Message
    The originator requests a paymentOriginator (payer) → Bank Alfa (sending participant)
  2. 02Posting
    Bank Alfa debits the originatorBank Alfa (sending participant)
  3. 03Message
    Bank Alfa submits the payment to CHIPSBank Alfa (sending participant) → CHIPS
  4. 04Clearing obligation
    CHIPS releases the payment against net positionsCHIPS
  5. 05Message
    Cassia sees the released paymentCHIPS → Cassia Bank (receiving participant)
  6. 06Posting
    The beneficiary is creditedCassia Bank (receiving participant)
  7. 07Settlement
    The net positions settle over FedwireBank Alfa (sending participant) → Cassia Bank (receiving participant)
MESSAGECLEARING OBLIGATIONSETTLEMENTPOSTING
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  1. 01Message
    The originator requests a paymentOriginator (payer) → Bank Alfa (sending participant)

    A corporate treasury asks Bank Alfa to pay a beneficiary at another CHIPS participant. Bank Alfa validates and screens it before submitting.

  2. 02Posting
    Bank Alfa debits the originatorBank Alfa (sending participant)

    The customer's account is reduced when the bank accepts the payment. The interbank leg is handled separately through CHIPS.

    • DR Originator's account at Bank Alfa — USD 3,000,000.00
  3. 03Message
    Bank Alfa submits the payment to CHIPSBank Alfa (sending participant) → CHIPS

    The payment joins the CHIPS system, which will hold it until it can be released against the participants' running net positions.

  4. 04Clearing obligation
    CHIPS releases the payment against net positionsCHIPS

    CHIPS continuously offsets payments in both directions and releases this one when the running net positions allow. On release the payment is final.

    Releasing against net positions is what lets CHIPS move large value with little cash intraday.

  5. 05Message
    Cassia sees the released paymentCHIPS → Cassia Bank (receiving participant)

    CHIPS tells the receiving participant the payment is released and final on the system's books, with the details of whom to credit.

  6. 06Posting
    The beneficiary is creditedCassia Bank (receiving participant)

    Because a released CHIPS payment is final, Cassia can credit its customer during the day, before end-of-day settlement.

    • CR Beneficiary's account at Cassia — USD 3,000,000.00
  7. 07Settlement
    The net positions settle over FedwireBank Alfa (sending participant) → Cassia Bank (receiving participant)

    At the close, each participant's remaining net position is settled with a single funding transfer across Fedwire — a fraction of the gross value that flowed all day.

    • DR Bank Alfa's net position (settled via Fedwire) — USD 400,000.00
    • CR Cassia's net position (settled via Fedwire) — USD 400,000.00

What this simplifies: Two participants and one release. Real netting runs across many participants continuously, with balance algorithms deciding release order all day.

LEARN THE CONCEPTS BEHIND THIS FLOW

Sources for this flow3
  1. Official requirement

    CHIPS ↗ — The Clearing House

    Describes CHIPS, the private-sector US dollar high-value clearing and settlement system operated by The Clearing House. · Checked 2026-07-12

    CHIPS migrated to ISO 20022 messaging in April 2024; participant rules are not fully public.

  2. Market practiceMarch 2003 edition

    A glossary of terms used in payments and settlement systems ↗ — CPSS (now CPMI), Bank for International Settlements

    Standard definitions for payment, clearing, and settlement terminology used across BIS committee reports and referenced by glossary entries on this site. · Checked 2026-07-12

    Terminology has evolved since this edition; newer CPMI publications refine some definitions.

  3. Simplified educational illustration

    Payments Signal editorial teaching models — Payments Signal

    This site's own simplified teaching models. · Checked 2026-07-12

    What this simplifies: Fictional participants and illustrative amounts; the net-position figure is invented to show the idea. Real CHIPS release logic, prefunding, and the closing settlement are more involved.

    Used wherever diagrams, scenarios, figures, or example values are didactic constructions rather than sourced facts; every such use carries a simplifications disclosure. All people, companies, banks, and list entries in examples are fictional.