At least where I live, if I make a transfer between my accounts (with different banks) too late on a Friday, the money won’t be available until Monday. But there are no humans involved in this process – it seems to me that could be instantaneous as far as the technology is concerned. What am I missing?
In: 1897
1. In the past: banks don’t want to send each other money directly. What if bank A gave money to bank B, then B suddenly goes bankrupt. Now A’s debtors have lost their money and B’s creditor didn’t receive it. As transfers can be for billions, that’s a big risk. So banks only want to send money to the one institution they trust: the central bank. Banks send their payment instructions to a “clearing house”. Every few hours they get back a report saying: bank A owes bank B amount X, as more people transferred from A to B than the other way around. Now A will send your money (and many other transfers, all grouped together in one big settlement transaction) to the account they hold at the central bank, then forward that to the account B holds at the central bank. And after that, B will withdraw that money and forward the individual credits to their customers. The central bank was closed outside of office hours. So you had to wait for interbank transfers.
2. At least in the EU “Instant Payments” are now a thing and your transfers should be booked to the other bank within 20 seconds. In those seconds the creditor bank checks if they can handle the transaction and “promise” to the clearing house they’ll transfer the funds and are now responsible for it. So for the debtor bank it’s safe to send the money. This took years of regulatory pressure to achieve…
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