Righto, so I’m overseas at the moment and wanting to transfer funds from my regular account into a Citi account 'cos there’s no fees with Citi for withdrawing from an ATM.
So anyways, the funds disappear from my regular account but don’t show up in the Citi account for anything from 1 - 3 working days.
Who is using my $ in the interim??
What payment network did they use? The description of a generic automated clearing house suggests that net settlement only occurs near the end of the cycle, so the originating bank still had the money most of the time, even though they apparently debited your account right away 
Yes, it depends on the specifics of the transaction but during the “gap” the money could be with the originating bank, an intermediary, the receiving bank, or some combination thereof. There’s a whole thing about banks being able to “use” this money to make profits - in a simplistic sense, think about them doing a short-term loan to someone while they’re holding it, but the reality is more complicated. There are also a lot more required checks for money laundering, fraud and terrorism funding than there used to be, which slows down the process even if the money doesn’t go anywhere.
So my $400aud isn’t actually anywhere? LOL, well that makes sense.
No, it cannot not be anywhere. That’s not how accounting works. (Somebody will be in big trouble if it is possible for funds to disappear and the book fail to balance!)
Generally speaking it will be in the originating bank but marked as not available. Whether you earn interest on not available funds would be up to the bank, but typically not.
Then it would be transferred to the new bank. That happens essentially instantaneously. The new bank might mark the funds as unavailable for a time as well.
If one of the banks is small or if the two banks are in different countries, there could well be an intermediate bank (or two). So the days in which you can’t get your money from either bank consist of time after you initiate a withdrawal until it’s transferred ( in original bank), time between receipt by intermediary until re-transfer ( in intermediaries), time from when the receiving bank gets the money until they make it available for withdrawal ($ in receiving bank).
Indeed, the money will be on someone’s books at all times, and transfers between entities will be instantaneous. As noted, “being on the books” is not the same as “available for use or withdrawal”.
It’s much the same as when you buy something on your credit card. It shows up as a “pending transaction” and even though it has not been added to your balance, it reduces the available credit. At some point, the seller gets a credit and you see the debit on your statement.
In the pre-internet banking days, you would not have been aware of it unless you were nearly maxed out, now you can watch it happen in real time.
It is in both your regular account and your Citi account simultaneously, but if you actually look at either account, it is not there. This is Schrodinger’s cash.
Well done 
You have $1000 in your account, you want to send $800 to your other account but also want to make a debit card purchase for $400. If the bank allows you to do both, you’re now overdrawn by 200 & they hope you pay it back. (it illegal to do such & the bank could go after you if the were large enough, but that’s outside the scope of this discussion). The bank doesn’t want to be in the hole so they memo post the debit(s) to make those funds unavailable to you. It doesn’t matter which one of these two txns comes in first, the other will be denied.
If your debit card purchase goes thru first, the store doesn’t immediately have the funds, it takes a day or two to do the settlement. The same is true with the transfer, your bank ‘takes’ the funds from your account to ensure that they have the funds when they need to make settlement with the other bank.
Part of the opposition to “real-time” payments that much of the developed world has but not North America is opposition from retail banks who effectively make money on the float. The time that it’s not available in either of your accounts is money they’re borrowing for free and don’t have to borrow from someone else. Since banks constantly have to be able to borrow money (even if they may not need it, they have to be able to since they never know what their cash demands will truly look like), this is a big deal to them. Although I’m guessing concerns about fraud and money laundering are also high on the list of reasons, that hasn’t stopped other places.
The Fed finally decided recently they’re going to look into making a “real-time” system. Federal Reserve Board - Federal Reserve announces plan to develop a new round-the-clock real-time payment and settlement service to support faster payments