Is it something that takes more labor or tech and therefore they charge? How is transferring from a bank in one to three days different from transferring right away, if they’re similar by method?
In: Technology
Free transfers are sent via ACH, same as transferring between bank accounts. The banks maintain these as a service for their customers so there’s no fee, but it’s kinda slow. The instant transfer uses credit card networks (visa or mastercard), which are way faster but you need to pay visa/mastercard a cut to use their network.
There are a couple concepts at work here. The first is that charging for a service doesn’t really have anything to do with how much labor or tech it takes, it instead relies on how much people are willing to pay. If something takes 2 cents of effort and people are willing to pay $5 for it then you sell it for $5. If it takes $100 of effort and people are only willing to pay $5 then you just don’t do it. People are willing to pay for instant transfers so there is a charge, even if it was just as easy as a longer wait.
Another issue is that “instant transfers” aren’t actually instant. They still take a few days, just behind the scenes. What happens is that the payment facilitator is covering the transfer themselves by basically providing a short term loan. Even if all those transfers go off without a hitch (and they won’t) it still means that millions of people have transfers in progress at any given time. That equates to tens, or more likely *hundreds of millions of dollars* loaned out at any given time.
If they weren’t covering the processing time of the bank transfers with those loans then they could be investing that money and earning a profit. So instead they are going to charge for the privilege of using that money.
What the differences are depends on what system is used in the background.
In the Eurozone (with SEPA), instant Transfers are basically just another mode of normal money transfers. Sure the banks need to support that and you need to solve some regulatory questions, but that is nothing impossible. There are standardized protocols that describe how banks can exchange the required information, and basically banks just has to implement these into their system.
Starting next year every bank inside the EU (or more precise the EEA) must be able to receive and send instant payments, and banks are not allowed to charge more for instant payments than for “normal” (slow) bank transfers. So basically these will become equivalent, and there will probably be no reason anymore to use the slow transfer method…
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Transactions typically take a couple days to go thought the communication, verification, etc. process so the “instant transfers” are basically short term loans. So they charge you for that loan.
Because an instant transfer is technically them loaning you money until the actual transfer goes through the multiple day clearing process on the backend.
It is a high interest, short-term loan. Very similar to a payday loan.
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