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It seems like electronic transfers can take 2 - 3 days to complete. For example, when I ask my online broker to transfer money from my checking account, the money won't actually be available to trade with until the third business day.

Why is this? Don't banks just use some kind of EDI? Is there some kind of tangible benefit to them of having the additional time (other than the banks hanging on to the money a little longer)?

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  • That's interesting. On Brazil, eletronic transfers complete on the same day at 22h if it is a business day or at the morning of the next business day otherwise. I always thought we were the slow ones!
    – T. Sar
    Mar 22, 2017 at 20:21
  • It's definitely possible, in New Zealand bank trades are processed every hour during normal business hours.
    – Daniel
    Mar 22, 2017 at 20:24
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    In the UK it now takes a matter of seconds.
    – Mark Pattison
    Mar 22, 2017 at 20:33
  • As Mark says, I can transfer from my TSB bank account using the app and it's in my bank account before I can switch to the Lloyds app. Sometimes it can take a little longer for me to be able to draw against it using my debit card - normally not, however.
    – Tim
    Mar 22, 2017 at 21:04
  • Its sad that US is so much slower than countries like India where it takes from few milliseconds to hours (for larger amounts).
    – Taranfx
    Mar 22, 2017 at 21:58

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I was perplexed by this until a few days ago when it finally clicked in a meeting with our fraud and money laundering teams in work (I work on trading surveillance). Apparently fraud detection and prevention of money laundering are currently the biggest delayers when it comes to electronic transfer of funds, checking that the transferring party has the funds to transfer etc. takes no time at all. It takes some time for a bank user to "release" a funds transfer; once it has been initiated it is put into a queue to be reviewed as potentially fraudulent or money laundering activity. Almost every transaction has to be monitored for this from a legal standpoint. The compliance process can take multiple days. Once the process is complete the request also has to go through "settling" which is an end of day process whereby banks "net off" their customers' transactions with other banks and only pass the net value between them. This is an end of day process by nature so only happens once a day meaning that once all of the checks have occurred any transaction will take until the end of the day to crystallise for the bank and so get credited to their customers' accounts.

Incidentally in the UK and Europe banks are moving to streamline this process through "faster payment" systems (that is the industry term for the technology) so that customers see the effect within a few hours (2 in the UK currently) and then the banks net off at the end of day as usual. This means reducing the time it takes to do the checks that have to be done using specialist software to flag transfers as potentially fraudulent or not and making banks' processes much clearer and faster.

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    That's the story they give, but it's not true. One of the most common scams in the world is to convince the mark to deposit the scammer's check and then the mark withdraws cash and gives some or all to the scammer. Days later, when the check is dishonored... Whatever they are doing in those days, it isn't detecting illegality; quite the contrary, they are facilitating it.
    – Michael Lorton
    Mar 22, 2017 at 16:27
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    @Malvolio they cannot detect all fraudulent activity but they can detect a lot of it. One problem is that false negatives are more harmful than false positives. Another is that if a customer really wants to engage in a fraud against themself there is little a bank can do to stop them. This is not "the story that they give" but demonstrable fact from a colleague of mine working on a product that we sell to these banks.
    – MD-Tech
    Mar 22, 2017 at 16:31
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    MD-Tech is giving you the banks' line, but it is not true. The banks could clear your check in five minutes if they wanted. The technology is there. It suits them to take days to clear the check and credit the funds to your account so that it is hard for you to know exactly the balance in your account, leading to errors on your part which lead to fees for the bank. US banks go so far as to show the balance on your account before it has been cleared, but if you try to use it they bounce the check or overdraw your account, leading to fees for them.
    – Flynn
    Mar 22, 2017 at 19:20
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    @Malvolio The reason the scam is so successful is because there isn't any error from the bank's side - as far as they're concerned, you're withdrawing cash and you have the right to do whatever you want with it. They can no more get that cash back for you than they could get your cash back for buying a dilapidated house or a losing lottery ticket.
    – Zibbobz
    Mar 22, 2017 at 20:08
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    With regards the Faster Payments system in the UK: this is stated to occur within two hours but I can't recall ever making a Faster Payments transaction that wasn't near-instant. I've had two browser tabs open and done inter-bank transfers that can't have taken more than 2 seconds.
    – jl6
    Mar 22, 2017 at 20:56
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When Laurence Olivier took the role of Douglas Macarthur in the Unification Church's filming of Inchon, he told the press, "People ask me why I'm playing in this picture. The answer is simple: Money, dear boy."

Banking systems are typically decades old and subject to innumerable legal and technical restrictions.

Moving money more quickly from one client's account to another would definitely be in the clients' interest, but

  • it would be a difficult and expensive change-over for the banks
  • it would cost the banks money, not only in systems costs, but in the loss of a great deal of float.
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    this is no longer entirely true as they are starting to use Fintech in a massive way to obviate these problems with slow legacy systems. This has only started to become a big thing in the last 3-5 years and is mostly as a result of more agile players in the market offering shorter transaction times and competing on flexibility.
    – MD-Tech
    Mar 22, 2017 at 17:02
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    @MD-Tech -- I am hoping, but have no hard evidence to believe, that the advent of digital currencies like Bitcoin will either force the legacy banking system to modernize or obviate it all together.
    – Michael Lorton
    Mar 22, 2017 at 17:33
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    actually it is more challenger banks and more flexible credit unions that are driving these changes. We are unlikely to see digital currencies taking over much more than they have done simply because it is hard for me to buy a pint with them.
    – MD-Tech
    Mar 22, 2017 at 17:37
  • @MD-Tech -- while it remains true that it is difficult to buy a pint (or an ounce) with Bitcoins, the banks are reasonably safe. The day you can easily pay your bar tab with Bitcoins is the day any reasons the banks have for existing evaporate.
    – Michael Lorton
    Mar 22, 2017 at 17:56
  • @MD-Tech -- I stand corrected. You can, in fact, buy a pint with Bitcoins. If I had any even vaguely illegal business, I would seriously consider using this.
    – Michael Lorton
    Mar 22, 2017 at 18:15

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