Why does a bank payment takes a long time to be received, especially if there is a weekend in the middle?
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Because the US is stuck with old standards, and the banking system is loathe to modernise. In many other countries domestic bank transfers are immediate and free.
When you transfer money from Bank A to Bank B, what actually happens is:
– Bank A deducts the money from your account and adds it to their reserves
– Bank A adds your transfer to a big list of transfers
– Bank A enters that big list into SWIFT during the afternoon on a business day (SWIFT is only open Monday to Friday)
– SWIFT sorts out all the lists overnight
– In the morning, SWIFT gives Bank B a big list of all the transfers their accounts have received on the previous day
– Bank B finds your transfer on the list and credits your account with the money from its own reserves
– At the end of the month, SWIFT calculates which banks owe how much to each other to settle up all the transfers
Instantaneous digital transfer services (like OSKO) are springing up all the time. However, countries have to update their legislation and payments systems to make it possible.
Might help to say where you are. It doesn’t take any time in the UK, or in the SEPA area if using SEPA instant.
Sadly banks haven’t had an incentive to make it faster. They make money from the fact that you aren’t earning interest in the middle. In the EU (and UK) it took government intervention and payments can be instant.
In the UK the faster payments service was introduced in 2008. SEPA instant credit transfer became operational in 2017. Both operate in under 10 seconds. I often experience almost real time in the UK.
In the US FedNow went live in July 2023 but seems to be limited to interbank payments across 35 banks and credit unions. That suggests a way to go in the US given the level of banking fragmentation.
Lesson learned – tough regulation is needed to make banks change and US retail banking is still archaic.
In the UK I pay for my Chinese take-away with a bank transfer. The payment goes through in less than five seconds.
International payments will be the next big thing. Currently it takes 3 to 5 days to settle. Up to 15% of transfers fail and there are huge fees. With distributed ledger technology (such as Ripple) this can settle in 3 to 5 seconds at a fraction of a penny cost.
Nothing to do with technology available and 100% the bank cannot be arsed updating.
In Australia we have instant pay where you can tap your money to another person. Super useful since our restaurants often refuse to split the bill.
The dirty thing is that most banks have a concept of “do now, process later” and they aren’t applying that to everything. In Canada I can instantly cash a check via photo or machine, if the amount I enter it turns out to be incorrect they adjust later. Do now, process later.
I think there is also some merit to the fact that they want to hold on to your money for interest but honestly I think banks are just extremely cheap when it comes to innovation that doesn’t help themselves.
In the EU, bank payments are pretty much instant. So fundamentally there is no good reason other than old systems and processes.
So my question of curiosity would be how is it possible to instantly transfer funds through apps like cashapp on weekends with little to delay, yet banks aren’t open?
Counter party risk.
Imagine party-A banking at bank-A sending money to party-B who is banking at bank-B.
How does bank-B know party-A has enough money?
Assume bank-B hands over the money to party-B, then realizes party-A never had the money they wanted to send.
Bank-A must provide confirmation to bank-B that party-A has enough money and party-B can paid.
And this example only talks about 2 parties and 2 banks.
What if there are millions of customers and thousands of banks? What if each customer has more than one account?
As you can imagine, it can get tricky very soon and we are talking about real money here. Fraud is everywhere. So after several decades of trial and error, systems like SWIFT were setup to make these verifications efficient but not real-time yet.
Fraud prevention teams don’t like real-time transactions as it’s impossible to react soon enough. AI-based fraud detection systems may change that in near future.
If you’re speaking about a bill pay service, if the receiver has a bank that accepts electronic transfers, the payment usually goes through in 2-3 days. If they do not, then your bank has to print a check and put it in the mail, at which point it is reliant on the postal service, which does not operate on Sundays, and if the receiver is not open on Saturdays, than that will add to the weekend lag time.
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