ACH payments and credit card payments are both forms of electronic payments. Because of this, reversing a payment is usually as straight forward as calling your bank. However, this does not seem to be the case with wire transfers.
At the end of the day, aren't they all just numbers in a database somewhere? Since they are all electronic in nature, should they not all share the same ease of reversal? What makes wire transfers different? Could someone explain this to me?
The definition of transaction.
ACH are considered check payments, and are treated as such. Checks are validated and paid once presented, which may be days after being deposited. As such, these transactions are reversable for the cases where the checks (ACH charges) are rejected due to insufficient funds, lack of authority, fraud, etc.
Wire transfers are considered "confirmed funds" and are made available to the recipient immediately. As such, they are validated at initiation. The bank will confirm with the sender all the instructions, and will make sure that the funds are in fact available, before confirming the wire to the receiving bank. The receiving bank will make the funds available immediately as such the sender bank is on the hook for the funds.
If the sender later tries to reverse the wire, the receiver may have (and was entitled to) withdrawn the funds and the receiving bank no longer has the money to pay back the sending bank.
As such, wire transfers are non-reversable to support this transaction definition.
There is no technical reason. The reason is that banks and bank customers want an instrument where a payment is irrevocable, as close to 100 percent as possible. If I get $1,000 through wire transfer then the money is mine, just as if the bank had sent me an envelope with ten $100 notes - it needs a court to say otherwise. Obviously when you pay by wire transfer you need to realise the money is gone. Your bank won’t protect you if it is fraud.
An example was given “what if your employer pays you too much money”. For normal transfers, they could talk to the bank and convince them to reverse the transfer. But not for a wire transfer, they have to take me to court if I refuse to pay.
On the other hand, if my company paid my salary with forged checks, or using someone’s hacked bank account, then the bank could take my money away. With a wire transfer, they can’t.
@AlanStack: If your bank claims you owe them $50,000, you have $50,000 in your bank account and fear they can access it, so you send $50,000 to my account by wire transfer: The bank could refuse to send the money. But if they send it, then there is no way to get the money back out of my account (except going to court).
Focusing solely on the consumer/payer side of this, the difference is that an ACH (or a cash payment, or a check) transaction is a buyer directly transferring money to a seller in exchange for a good or service (or more broadly, a person transferring money directly to another person for some reason, which may or may not be a purchase), whereas a credit card transaction is a buyer basically saying something like "Hi Visa, please pay for this burrito, and I promise to pay you for it at the end of the month/statement cycle".
The credit card scenario is interesting and more complex; it introduces a third party. The purchaser doesn't actually transfer any money for the transaction, and instead incurs debt to the card issuer. When a transaction is "reversed", money doesn't flow from the card company back to the buyer. The credit card company just agrees that "ok, you don't owe us money for this thing". (Exception in the case where this leads to a negative balance on the card). There is another piece to this though, which is the merchant/seller and card company relationship. These are typically governed by large, complex contracts. When a transaction is "reversed", money may or may not have already been transferred between the card company and the merchant, and may or may not need to be returned (or at least subtracted from future payments for other sales). There are certain screening and fraud prevention mechanisms in place to reduce the frequency of this happening, and merchants may have to pay penalties or even get their account cancelled (and no longer be able to accept credit card payments) if too many of their charges get reversed.
From a "numbers in a database" perspective, of course they're all reversible. You just need to add the corresponding opposite transaction to the database. But you'd need to get all parties involved to actually participate in a such a transaction (or grant permission for it to be executed, like in the case of a CC merchant contract).
To keep it very simple, it is regulated by the contracts between the different parties (and sometimes by law). One example
A credit card payment generally has five different parties (sometimes more, sometimes the same party has several roles):
The contracts specifies how different situations should be handled. As example, you as a buyer has a limited time to "reverse" a payment (typically 90 days from purchase date). All parties in the chain will be affected by this. Most often your request will be handled as an investigation. It could potentially lead to the merchant beeing excluded from receiving further credit card payments.
In a similar way other payments are controlled by contracts between the parties. As for wire transfers the contracts stipulate that once initiated they are non-reversible.
There isn't a single database. Each bank has its own database. Once your bank has transferred the money to the other bank, the other bank now has the money, recorded in its database.
The whole process is governed by:
If you try to reverse a transfer to another bank, they have no obligation to send the money back unless one of the three items above applies.
