Why is transferring money online to someone else's bank account so difficult in the U.S.?

Question

I used to live in a poor, third world country (India) where I freely transferred money between my bank account (a savings account) to accounts held by my friends in different banks, and different countries using just the Internet, net banking. It took less than 24 hours for the money to appear in the other person's account.

Now, here I am in the U.S., the mecca of Internet startups and general web awesomeness, and I find that neither Capital One nor the United Nations Federal Credit Union accounts I have will allow me to transfer money to a Bank of America account that belongs to my landlord. I would like to sit at my computer, add his account, hit Transfer, and have the money appear in his account. It seems that all they can do is either mail him the check, or I can go to the bank and deposit it.

I would like to understand why transferring money in the United States is so difficult. Is there a reasonable explanation?

Answer 1

While the US hosts most of the world's innovative startups, its own financial and banking systems are very slow to change.

The infrastructure exists, however the ACH transfers are not wide-spread between individuals. Banks much prefer the option of bill-pay (i.e.: as you said, mailing a check, something in other countries people wouldn't even think of), than letting you do it yourself.

Why? Because they can. There's no real competition over consumers, and the consumers themselves are not educated or sophisticated. Thus, the banks are comfortable with the lack of innovation - since as long as they are all lacking innovation - consumers won't demand it because they won't even know things are possible. And it is definitely cheaper for the banks not to innovate and keep your money for a week while the bill-pay check is en route, than try and develop new things.

In other countries, the regulator would step up and force banks to develop new infrastructure and widen the options, but in the US regulation is considered a bad thing, and people are easily swayed, being uneducated and uninformed, by the corporations to support politicians who act against their (people's) best interest in protecting the corporations and reducing and limiting the regulators even further.

Answer 2

The regulatory environment here is the main driver. In Australia, where I spent 10 years developing software for lenders/banks you can operate the same way as described in the original question (overnight transfer to anyone) and cheques are not only never used, if you try, people will laugh at you. In Australia 4 banks control > 90% of the market, they realize that overnight transfers that involve them 0% is more efficient (read: costs less) for all of them.

This will change in the next 1 - 2 years in the US I believe however, as pressures from technologies like bitcoin and technology providers like dwolla and venmo start to get a foothold and broader visibility.

Answer 3

Simple. If they don't allow you easily transfer money then they get to keep your money longer and earn more interest. Not to mention they can continue to charge fees for wire transfers. When I was in Colorado Springs all the banks allowed free bank to bank transfers. Why? Because their clients demanded it. Most of their clients were military members who needed to be able to send money home or to relatives in other states etc. When I moved to Texas I could not find a single bank that allowed free bank to bank tranfers. They had varying fee schedules for wire tranfers ranging from $7 to as high as $22. When I asked why they charged a fee to send money basically over the internet I was told that the Feds made them charge a fee. Big bunch of bull but I had to have a bank. Banks, in this country, will make it as hard as they legally can for you to remove your money from their greedy little mitts. I am going through this now with a bank in Idaho. Supposedly I can send funds bank to bank but I have to jump through a bunch of hoops that are difficult because I work during the bank hours. The bill pay site says I can do external tranfers but the button to "set up external transfers" is mysteriously missing. So I have to fill out paperwork in the presence of someone at the bank and submit it. I was even told that it had to be typed or it may be refused. The more I travel the more I mistrust banks and their schemes to keep my money.

Answer 4

Many banks here have some kind of service that will do this for you. For example, Wells Fargo has 'Bill Pay On Line'. You can use this to make regular payments - for your rent or mortgage, car payment, utilities and so on. You can also go on line and pay any company or person. If they don't have the facilities to accept electronic payment, the bank will actually mail them a check.

See https://www.wellsfargo.com/online-banking/bill-pay/ and https://www.wellsfargo.com/wfonline/tour/olb/high_flash?deep_link=2

Bank of America has something similar, but this forum won't let me post more than two links. Go to google and search the name of the bank with 'send payments' or 'pay on line'.

Answer 5

Capitol One and Bank of America both use Zelle which allows for a really simple transfer of funds. I don't have a Bank of America or Capitol One account but I do use a bank that also partners with Zelle and all I need is the recipients phone number or email address and I can send them money with a few clicks through the app or via the banks website. Since BOA and Capitol One are Zelle partners it should be a near instant transfer of money.

The wiki entry has more information on the banks that are also partners: https://en.wikipedia.org/wiki/Zelle_(payment_service)