A:

CHIPS UID stands for Clearing House Interbank Payments System Universal Identifier. This is just a fancy name for an electronic clearinghouse database system, which facilitates the transfer of funds from both individual consumers and institutions. It is the back end of the automated clearing house (ACH) network, which is run by the National Automated Clearing House Association, and it provides the platform that allows exchanges to take place quickly and accurately.

Developed in the 1970s, the key to the CHIPS UID system is that its database contains all the necessary information to identify specific participants, such as name, address, routing number, account number, etc. However, all of this information is kept confidential within the system and each participant's information is linked to a six-digit code, which is referred to as the CHIPS UID.

Because the CHIPS UID number can be used by the clearing system to look up the needed banking information of a payment's recipient (e.g. routing number and account number), payment orders can be entered into the system simply with the CHIPS UID number. This simplicity reduces the occurrence of errors in transaction entry and speeds up the process for all parties.

As well, because the CHIPS UID number is linked to (but does not reveal) banking information such as an account number, the structure of this clearing system prevents a biller from knowing a payer's banking information, which increases the security and confidentiality of the system. The CHIPS UID system processes both domestic and international transactions and has long been the foremost method of moving U.S. dollars among the world's banks.

To learn more about electronic transaction technologies, check out our Electronic Trading Tutorial and Introduction To Level II Quotes..

RELATED FAQS
  1. What are the main types of chips produced by semiconductor companies?

    Learn about two ways in which chips in semiconductors industry are categorized: by functionality and by type of integrated ... Read Answer >>
  2. What is the average price-to-earnings ratio in the insurance sector?

    Discover the role the chip cycle plays in the electronics sector. The electronics sector is highly sensitive to shifts in ... Read Answer >>
  3. Should I care about the book value per common share when dealing with a blue chip ...

    See why shareholders of any listed company, even owners of blue chip stock, should care about what the book value per common ... Read Answer >>
  4. What are direct costs of sales?

    Learn about direct costs of sales and cost of goods sold (COGs), what direct costs of sales measures and how to calculate ... Read Answer >>
Related Articles
  1. Insights

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  2. Investing

    Banking On Blue Chip Stocks

    Discover what makes blue chip stocks such attractive investments.
  3. Investing

    What does "Blue Chip" Mean?

    Describing a business as “blue chip” comes from the game of poker, where blue chips are the most valuable.
  4. Personal Finance

    Bank Lingo: Routing Number Vs. Account Number

    Each consumer bank account has its own personal ID. And so does the bank. How do these numbers function and how do they protect the account holder?
  5. Investing

    Challenges Faced When Analyzing Green Chip Stocks

    The fact that a green chip is not yet a blue chip should not alarm investors, but they need to be aware of the differences and challenges that can arise from assuming these are durable companies ...
  6. Investing

    Google's Machine Learning Chips Beat Intel and Nvidia

    This is good news for its cloud business, as it could attract more customers and significantly reduce costs.
  7. Trading

    Trading Systems Coding

    Automate your trades by translating your strategy into a language your computer can implement in this hands-free approach to investing.
  8. Insights

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
RELATED TERMS
  1. Clearing House Interbank Payments System - CHIPS

    The primary clearing house in the U.S. for large banking transactions. ...
  2. Bilateral Credit Limit

    Intraday credit limits set by two institutions for use with one ...
  3. Corporate Trade Exchange - CTX

    A monetary transfer system used by corporations and governmental ...
  4. Green Book

    A comprehensive guide for financial institutions processing federal ...
  5. New York Clearing House Association

    An organization established in 1853 to simplify the settlement ...
  6. Automated Clearing House - ACH

    An electronic funds-transfer system run by the National Automated ...
Hot Definitions
  1. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
  2. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  3. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  4. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  5. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
Trading Center