Why do online payments take so long?

I pay most of my bills online. Even after you have established your profile and they have your account number to draw the money from, it still seems to take 2 to 3 days for them to take the money from your account. Why is that? They have my account number, they have the amount I authorize them to take, what’s the holdup? It should be a 1 second electronic transaction.

The worst example of this was my Chase Mastercard. I would log on several days before my due date, and they would inform me that payments take 2-3 days to process (maybe it was more), but for $5.00 they could expedite the payment in only 1 or 2 days. That card got cancelled and I told them why.

The companies that process the payments make a decision based on a bunch of factors about how to actually make the payment. Despite the fact that you initiate the transaction online, there is a fairly good chance that your payment will be made by paper check. You can identify these because they will appear on your checking statement with a check number that is way outside of the range of the check numbers in your check book. Some payments will be made on your behalf by sending one big check to a payee which includes your payment along with those of hundreds of other people. Because of the possibility of the payment being made by paper check and US mail, the payment processors simply declare that the lead time for all payments will be 3 or 4 days.

Mine usually go through overnight. However, bank transfers and procedures aren’t always as automated or fast as you think they should be. There are several different methods in place but an electronic transfer is often just a layer on top of banking procedures that have always existed. It is often undesirable to have funds instantaneously being transferred at the click of a button. No systems are perfect and having a clearing process that verifies what is happening on both ends is often preferable to just making everything happen right away. It can be done of course but the traditional banking procedures work well and they may be reluctant to implement a system that deviates from them just for the sake of speed.

The cost savings inherent in batch processing is why. Everything you probably want to know can be found at The Automated Clearing House (ACH) Network.

You’re joking, right? You think because a “check number” has been assigned to your transaction by your bank, someone is sitting there writing checks on your account?

No joke, Unc. I work for the largest electronic payment processor in the US. We do about 80% of the payments electronically through ACH. The other 20% are made by paper checks. Some of those are batched checks as described above, but the majority are checks that we print with the customer’s routing and account numbers. We print check numbers on them too, and they end up in the stack of checks that the customer gets back from their bank, if they still get their checks back.

I don’t really want it payed immediately anyway. I pay them all through BofA’s online site, and they let you schedule the payment by delivery date - the lag time for each payee is built into their interaction. I schedule them to arrive the day before due - why let the money leave your account early? I suppose if I were really anal I could find out how much grace period each payee had without penalty and schedule them all AFTER due date. It’s all about the float! I want that $0.000001 extra interest!

(Of course, my garbage company’s bills arrive marked “due upon receipt”, perhaps to discourage such games.)

Hadn’t thought about batch processing. That’s actually the way we do a lot of stuff here too.

But as the customer, after I enter the info and verify it they can take my money right then. It’s not my problem that it takes them X hours or X days to do it.

They cynical side of me thinks that credit card companies don’t mind the lag time because it gives them the chance to charge late fees.

All of my automatic and on demand payments made through my bank are printed at a central facility and mailed through the US Mail.

so wait a minute…if I have automatic billpay on my car note, due on the 15th, which I “pay” electronically on the 14th, if the payment doesn’t post until the 19th, it could be considered late?

The payments I’m talking about are actually made on the web site of the company; for example http://citicards.com. When you set up the account they ask for your info and checking account number. When you make a payment you just tell them how much to deduct, verify what you entered, and then it’s up to them to DO IT. I don’t know what happens if my payment is due March 20 and I make an online payment on March 19th, but I fully expect there would be a late charge.

My bank has an Online Billpay service that does indeed send out checks on my behalf, I just log in and tell them the amount to pay. There is a lag time on those payments, I assume they go regular mail just like sending the bills yourself.

And my company processes those payments, too. If we do it electronically, we pull the money from your account and pay it to Citi via ACH. If our risk process decides that it needs to be done via paper check, then we print a check.

Yeah, often times I’ll “bill” pay my friends, and they just mail out a printed out check to them. It’s very convenient and free to me. Otherwise, I just keep forgetting to hand over the check. When I do remember i owe them money, I can just take 2 minutes at my computer, and viola, they have a check 2 days later.

None of these answers are very convincing. Other countries manage to implement much more efficient electronic banking systems with lower fees.

The real answer seems to be that America has a lot of legacy systems and there’s a lack of incentive to ditch them and move to something more modern.

My experience has been the opposite, Online payments are quick.

I use my bank’s online service. Electronic transactions require up to 2 days but often happen in one day. If there is no ETF, a paper ckeck is printed by the bank and requires 5 days to post. I’ve never had a late payment after following their guidelines.

I find it is much easier to use the banks online system rather than the setup an online account with each and every one of my payees! Though I do have online access to all of my payee accounts to monitor that the payments do post on time.

Maybe if I was a little more forthcoming I’d be more convincing. My company processes about 70% of the online payments made in the US. As I said before, 80% of those payments are made via ACH, 20% by paper check. ACH payments can be processed on the day on which they are authorized, if they are authorized early enough. They can always be processed by the following business day. The US system is not antiquated. The reasons payments take longer are more complicated than that.

Many banks offer online bill payment to their customers at no cost. My company processes those payments, and we always charge a fee for each transaction. How much we charge depends on several things, one of which is the lead time allowed for the payment. ACH payments are not processed individually, they are batched. We run several batches of payments per day. We prefer, and charge our lowest cost for, processing payments in the middle of the night, because the system which processes the payments is the same one that 30 million individuals use to schedule their payments. Most of our user activity is between 7 AM and 7 PM EST, so we charge a premium for batch processing during those hours.

Another factor is risk. There are several payment and collection models used by our bank customers. For some banks, we debit the customer before we credit the payee. No risk there, so payments for customers under that model can usually be scheduled for next day payment. For some banks, we credit the payee and then attempt the debit for electronic payments. For customers under this model, a complex set of rules determines whether we make the payment electronically or via paper. For these customers, a three or four day processing time is imposed on their payments, even though we could make the payments faster.

Our bank customers are the ones who came up with the idea of charging a premium to their customers for next day payments. We only charge extra if we have to execute the ACH transaction during a daytime batch.

So why does Paypal take 3-5 days to transfer from/to a bank account? There can’t be any paper involved. It must be all-electronic. So why isn’t it instantaneous?

I believe the answer to that is float. They are earning interest on the money between the time it leaves the buyer’s account and when it hits the seller’s account.

My bank seems to be the worst I have seen. It takes over a WEEK from when I click “send payment” for whoever I’m sending it to gets it. Very annoying, since my previous bank (which was bought out by this one,) took the average of 2-3 days.

Batching? Come on, this isn’t 1970. There’s no technological reason why things couldn’t happen instantaneously, only sociological reasons and the inertia of the current system. Compare the electronic banking system to the stock market. You can execute trades involving millions of dollars in less than a second and for a fraction of a penny.

The trades you are talking about still settle in a nightly batch process. The stock market, which was the industry I was in for thirteen years before I joined my current firm, is even more batch oriented than banking. Orders happen more or less in real time, but shares and money actually change hands in a nightly batch cycle. There are very good technological reasons that these high-volume financial systems are updated and reconciled in batches.