In a day and age where information can be exchanged over any distance virtually instantaneously, why does it still take 2-3 days for a bank account transfer to post to my account? And when I cash a check, it can take longer still before the funds become available - and even then apparently they aren’t really sure if the funds are there or not because the check can bounce and the bank can debit it back out weeks (or even months?) later.
Same thing when I charge something to a credit card - it usually takes a good 2-3 business days before the transaction will show up online. What gives?
When I use my debit card it sometimes will show up online right away and sometimes it shows up the next day.
In general banks are very old fashioned and they don’t change quickly. They still do a lot of batch processing which means they don’t process a transaction until the end of the day. They have a lot of safeguards in their software to make sure that money is not lost when it is being transferred from 1 account to another. Also they have laws they must follow in some cases and that can slow things down. One big problem is they cannot transfer funds to another bank on a weekend or a holiday since that system is shutdown during those times.
One night batch processing at your bank, one night processing at the other bank, and there can be a cutoff time for deposits to make it to the same nights processing for your bank, say 3pm.
It’s also a way to trap the careless and impecunious into racking up more overdrafts. People often make the mistake of relying on what the bank’s computer gives as their available balance. When you use a debit card, the amount is usually subtracted immediately, which makes that assumption seem valid. But IME, at some point the during the month the bank credits some of that money back into your account where it sits for several hours or a couple of days before they finally tally everything up and bring the “ledger” and “available” balances into agreement. This doesn’t happen with most debit card transactions, but there are a few.
I know, I know, by keeping careful records I can avoid that, and I do now, but in the past it was occasionally a problem.
Credit card charges are processed in batches at the end of each business’s business day.
For instance, if I work in a hotel and you check out at 9am and the credit card bill is $200.00, that charge is approved but not processed till night time. Usually that is after 12 midnight. So if you check out on Aug 29th, the credit card is sent to the banking center after midnight on Aug 30th. It’s called “batching out.”
Suppose this hotel has a bunch of call offs, you’re credit card transactions might not be “batched out” for days till the hotel gets around to it. Generally the business has a week to send in the transactions
Debit transactions can be handled in a number of different ways too.
When you see debit transactions right away you’re actually seeing only approvals not actual charge processes. The money is still not available. Debit transactions are handled differently depending on the store’s merchant agreement. If you get real time approval it’s safer but more expensive.
I can transfer money between bank accounts (two different banks) and it only take 24 hours. If I submit the transfer before 2pm my other bank account is cleared the next day.
While Spectre is right as regards some unscrpulous banks, something related but somewhat less nefarious is a bit moreaccurate:
Banks don’t sell money, they sell time. If I offered to give you $50K now in exchange for you giving me $75K, you’d laugh at me. But if I offered to give you $50K now in exchange for your giving me slightly over $1000 a month for six years, you might well jump at the chance.
Why banks process transfers, deposits, etc., slowly owes something to conservatism but more to the value of “the float”. Three days’ use of your $50 deposit doesn’t amount to much – but three days’ use of 10,000 deposits totaling $120,000 means they effectively have an additional $120K for those days. Figure they are doing this every day, and that’s no small potatoes!
To those who said “because they batch process it at night.” Do you have any reason why they do this? Do their transaction computers just sit idle all day? What up with that?
Here in the UK, there is something called The Faster Payment Service, where payments are made and are available almost instantaneously. Most - but not all - banks subscribe to this. I have an account with a bank that doesn’t which I am closing because I do resent the obviously unnecessary delay.
The US may be lagging a bit behind on the whole banking thing. I say ‘may’ because I have little experience with the US banking system but I just found out this summer that the Canadian system is a joke and more than a few years behind what is possible here in Holland (note that I’m mainly talking about checking account trabsactions).
A friend who now lives in Montreal has both a Canadian and a Dutch account and the best way to transfer between the two is to go to an atm, draw money from the dutch account and deposit it at the same machine on the canadian account (which then tells you it can take up to 5 days (!!) before it is added to said account. according to the information provided by our dutch banks transfering within europe will be done within 3 days and within the country will be completed the next day (unless you do the immediate thing refered to in the quote). He was also told that the easiest way to pay his rent (to roommate) is to withdraw money from an ATM and go inside the roommates bank and deposit it on the roommates account.
Most importantly, all my (and of most of the people I know) banking is done through the internet. I can transfer money, set up new accounts etc. just by logging in. I seriously can’t remember when I last actually spoke to someone at the bank. All monthly payments are set on a periodic transfer, where the bank will automatically transfer the money on the 2nd (or whatever you want) of each month. If I have to pay companies or organisations, they will send me an Acceptgiro which will require me to just fillout the payment number online and it will be paid. I just mention these things because they have made banking so much easier for me and my friend said they are all non existent in Canada.
Another thing is that everything is free. The only thing you pay for (with some checking accounts) is withdrawing money in a different currency (which would automatically be abroad off course), which I actually don’t pay with my type of account. I must say they have been really smart about this, because you really have the feeling it is a free service and you only have to pay some interest when you are overdrawn (whih seems reasonable). None of the other banking stuff costs money.
Not sure if this is relevant, but I have e-mail alerts on my credit card and an alert popped up in my inbox less than 15 seconds after I purchased an airline ticket. I don’t know what, if anything, they have to process overnight. From where I stand, the airline knew they had their money and the CC company knew they had to pay within seconds after I authorized it. Don’t see why it should be any different for banks.
Banks make a living by borrowing money your money (and they sometimes also, if they are kind, pay you an interest) and lending it to others charging an exorbitant interest.
This is what your money is used for before you get access to it.
(I can’t speak specifically for the banking industry, but I am quite familiar with batch processing in the Pharma industry)
Many kinds of batch processing involve taking a set of records from point A and moving them to point B, often with some kind of transformation happening in the middle. This process is simple when you have a single table to move.
The problem is that even for the simplest of business processes, there are often dozens of tables to move, sometimes hundreds. And there might be many dependencies (don’t move this record unless those others over there have moved, etc).
And these data feeds need to happen in a very specific sequence. One process I deal with has ~250 separate data feeds that run one right after another in a clearly defined order.
Processing like this becomes exponentially more difficult to code correctly and to tune when you go from a nice nightly batch window to “near real time”
And don’t you want your banking done using the simplest processes, which can be tested easier?
The various ways that we “do our banking” on the internet replace the interactions that we used to have to do by writing a check or going to a bank branch and doing things in person. They do not, for the most part, change how money actually moves.
As an example, if you “pay bills” online, what you are doing is authorizing and scheduling a pair of transactions, a credit to your payee and a debit to your checking account. These are separate transactions that happen at different times and often through different mechanisms, and both transactions are subject to error or failure. Both of these transactions, in the US system, happen via batch processing.
There are strict limits on the entities that are allowed to debit your checking account. Even if you think you have authorized a payee to do that, you probably haven’t. What you have probably done is to authorize an originating depository financial institution (OFDI) like my employer to debit your account on behalf of your payee. The OFDI is authorized by the Fed to originate debits, and is authorized by the payee or the payee’s transaction network to originate credits. Neither the banks nor the payees have any interest in allowing real-time access to your or anyone else’s account. Too expensive and too risky.
Payees and banks may use various means to give you the reassuring impression that a real-time payment has taken place, but there is almost no case where money actually moves in real time. These apparent real time transactions are memo postings that reflect what will happen if nothing goes wrong.
Our mainframes are doing a lot more than just waiting around to process debit card batches. We make good use of their capacity to handle about 4 million financial transactions per second - Interest on savings accounts, mortgages, auto loans, credit cards, etc. perpetually needs to be calculated. Deposits get entered, checks get posted, people walk up to ATMs and get cash, so on and so forth… There’s very little time that the mainframes aren’t actively chewing on something. The processor-intensive work is scheduled overnight as there’s normally not much customer activity then.
For the most part now, the debit/credit card processing schedule is determined by the merchant. More and more retailers are running each sale as its own batch as it’s far easier to reconcile a batch when there’s just one transaction in it. When I worked at a small store several years ago, we had the option even back then to run batches in several ways - they could be closed and sent for each sale, at shift changes, at the end of the day or even only once a week.
Yet in Canada, I can walk into a store, make a purchase with my Interac debit card, then walk out with the purchase, check my balance from my phone, and see that the transaction has already posted. The system can be designed to work in near real time.
What we need in Canada is European-style instant ‘push’ transfers from any account to any account. I want to be able to send rent money immediately and have it show up in my landlord’s account, not give a cheque and wait around for the landlord to request the money from my account. We have a workaround via Interac Email Transfer, but that requires that both sender and recipient have email addresses as well as access to online banking with institutions that support the service.
That’s what I’d like to know. After all when you use the debit card, you immediately get a receipt with the amount, store name, and the last four numbers of your card right on it. Instead of having that merely (and temporarily) subtracted by the bank from your “available” balance, why on earth can’t they properly itemize it?