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From what I've seen, most banks process money during night batches and once during the day around lunch time. Some resources I found say that during the day most banks process transactions at 10:30, 13:30, and 16:30.

I always considered this as "the way things are", but now I wonder why don't do it more often? Once every hour for example.

Is there a reason why banks process transactions and transfer money to each other so rarely? I understand that some transactions take more days to be processed because of fraud risk, or that they wait for credits and debits to cancel each other out and transfer less money, but the transactions that get processed at 13:30, for example, why not process them sooner?

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Yes, banks do this because it allows for "netting". As you put it, the money that banks would send to other banks is cancelled by money that is being received. This means that less cash has to be moved. Cash that is being moved around earns no interest, so the bank wants to reduce this as much as possible so money can be placed into more profitable investments.

The larger the transaction batch, the better the effects of netting are.

Banks do give you a choice. For example, SWIFT/Fedwire transfers are processed immediately with no netting, but you'll find that banks charge $25-50 to send one. Debit network and ACH/SEPA transactions allow netting and are handled at close-to-free levels.

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This is probably caused by historical reasons. Hardware was really expensive systems and also not capable to get jobs done that fast 30 years ago when more and more backs began to switch their system to computer based Since a more frequent processing of the transactions would require investments into the hardware of the bank but also into the hardware of the network between the banks time is needed to change this.

Because of the fact that more and more nontraditional online payment service institutes (like PayPal) have grown strongly in the past years, banks will have to invest into this sector to stay competitive.

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In the UK at least there is (and has been for at least 10 years) a system called 'faster payments' this allow payments to be processed within seconds - So you can go into your Online banking portal and transfer funds to an account with a different bank and by the time they have logged in the recipient would see the funds have arrived and have fully cleared meaning that they are available for them to spend/withdraw. How faster payments work

Based on this I would assume that the reason that transfers in USA don't happen more frequently is due to the difference in infrastructures between the American and UK banking sectors

  • It depends on what you mean "in seconds". Credit/debit, Faster Payments/SEPA, and the US equivalent ACH, all allow a "message" to be sent in seconds. This is an irrevocable promise to pay. However, the actual money flows later to allow for netting, the cancellation of outgoing and incoming funds. For example, a Visa transaction, which you might think is instant, takes around 3 days to settle. – user71659 Mar 28 at 23:54
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In addition: at least in the US, many people live financially 'on the edge', in the way that they pay bills / make payments on the same day their paychecks arrive.
If you deduct their payments when they trigger them, that could be before the paycheck arrives, it would result in rejections / fees. In other words, people trust that it's good enough if their account is ok at the end of the day, not in between.

That could of course be handled in software, but it adds another level of complexity.

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