Although there are three government schemes, these fall into two different types, the difference being the way the deposit is held during the tenancy.
The custodial scheme involves landlords paying the money to the scheme for safekeeping during the tenancy. When an agreement has been reached over who is entitled to the money at the end of the tenancy, the money is directly refunded by the scheme to whoever is entitled.
The insurance scheme involves the landlord keeping the deposit during the tenancy and paying an insurance premium. If there is a dispute over any of the deposit, the landlord must pay the disputed amount over to the scheme administrators until an agreement has been reached.
If the landlord fails to comply with this or refund the money (despite the tenant being entitled to be refunded), the scheme operator will pay the tenant by claiming on the landlord’s insurance policy ensuring that tenants do not miss out on getting their money refunded