4

Based on this question, I figured that there might be multiple questions for distinct locales. Why do the most common transactions to or from bank accounts in the US require waiting one or more days before they are completed? In the information age, it seems like we should be able to transfer money instantly (or nearly so).

9

As Nathan has correctly noted, ACH processes transactions in daily batches. The reason for that is accounting - the money doesn't actually change hands for each transaction. All the transactions are aggregated and calculated in the batch process, and the money only changes hands for the difference.

Consider this:

  • 25 clients from bank A send each $50 to bank B.
  • 2 clients from bank B send each $500 to bank A and 1 client from bank B sends $50 to bank C.
  • A client from bank C sends $50 to bank A and $50 to bank B.

If each transaction was to be handled separately, each time banks would have to adjust their books to account for the money movement. But if we do it in batch we have this:

  1. A owes to B $1250 (25 times 50)
  2. B owes to A $1000 ($500 times 2)
  3. B owes to C $50
  4. C owes to A $50
  5. C owes to B $50

The resulting inter-bank transfers:

  1. B and C don't transfer any money to each other - their transactions cancel each other.
  2. A transfers to B $250.
  3. C transfers to A $50.

Total for the original 30 transactions - 2 transactions between the banks: A->B and C->A.

If you need money to be transferred immediately (relatively) - you can use wire transfer. Some banks will still aggregate and batch-process those, but more than once a day. They'll charge you additional fee for their inconvenience.

  • And this was especially valuable in the time before high-speed internet. – RonJohn Nov 6 '19 at 22:59
4

Automated Clearing House transactions are used in the US for direct deposit of pay checks and direct debit of many payments for accounts such as mortgages, credit cards, car loans, insurance premiums, etc. The reason they take one or more business days to clear is that the transactions are accumulated by each processor in the network during the day and processed as a batch at the end of each business day.

The ACH network processes 20+ billion transactions per year worth $40 trillion, (estimates based on 2012 figures).

  • false conclusion on why the system won't change any time soon, compared to it being an antiquated system far behind networks in other developed/developing nations that simply have newer systems – CQM Oct 6 '14 at 16:57
  • True, there were a few unwritten assumptions in that conclusion. The primary problem is that there is an entrenched system in wide use, the secondary problem is that the biggest player in that system is the Federal Reserve, and government agencies are not known for speed. I will remove the editorial. – NL - Apologize to Monica Oct 6 '14 at 17:34
0

I was doing some calculations, and I reckon the answer is interest-ing. (Sorry)

On $1000, at 2% interest, I make roughly $0.05 a day.
If my money is in limbo for 3 days, then I lose $0.15
With money, if someone loses, someone else gains...

So, for every $1000 transferred, the bank is effectively making $0.15

Using Nathan's figures from 2012 as an example, $40 trillion in transfers, assuming a much more conservative 0.05% interest rate:

Daily interest on $40T @ 0.05% = $54,807.08

If all these transfers took 3 days, the banks netted $164,421.24
Every day your money is "between banks", they make a lot more profit.

At 2% it's more galling:

Daily interest on $40T @ 2.00% = $2,211,984.18
Over 3 days that's $6,635,952.55

These 3 day transfers are making them millions.
Any surprise they aren't rushing to change that...?

  • 2
    By your logic of "if someone loses, someone else gains", where does the banks "profit" from this scheme come from? – Nosjack Nov 7 '19 at 17:42
  • @Nosjack: The accountholder's average daily balance is reduced (because the money is between accounts, not in either one), therefore the bank pays less interest to the accountholder. The accountholder loses because they don't receive the interest, the bank gains because they don't have to pay the interest (but still had control of the money for those extra two days). Most of this is now just a curiosity of history with intraday ACH processing becoming standard... ACH transactions are still batched but now batches are just hours apart instead of a whole day. – Ben Voigt Jan 3 at 16:29
  • @Nosjack: Like Ben said. If the bank is holding my money, they are making money from it (by investing it elsewhere). Normally they pay me a sliver of their return in the form of interest. However, if my money is "between banks" then I am no longer receiving that sliver. Either the sending or receiving bank is profiting from not having to pay me that interest, while still getting their investment returns from it. Money they don't have to pay out is profit for them. The maths above shows how that adds up to significant amounts for the banks. – ttt Jan 5 at 8:12

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