So it was late evening, I tried moving some money to a Revolut acc from a local bank (I use the former one for all app/web payments), however, I noticed that it took almost a day when I initially tried to move money from one acc to another using regular bank transfer (both belong to me) but when I chose to transfer using the card, I got money instantly.
As far as I understand, unless you are moving huge amounts of money at once, everything is done automatically, plus, in both cases, you have to prove your identity using the app and go through all security stuff. So why is there a difference in speed, if you move your money using different means?
In: Technology
The banking system in the US is based around two principles:
– (a) Transactions are processed in a batch at the end of a day, excluding Sundays and holidays.
– (b) Mistakes can be made, but they can be fixed by calling the other bank involved in a timely manner.
Rule (a) means that you’re going to wait up to 24 hours, because your orders to transfer money don’t actually take effect until 4pm (or whenever the cutoff time is). So if you do your transaction before 4pm, you’re waiting until 4pm; if you do it after, you’re waiting until 4pm the next day.
Rule (b) means there’s usually a several-day wait because if your bank “sees” you got sent $1000 from XYZ bank, they’re really worried that you might ask for $1000 in cash and disappear, then get a call from XYZ bank the next day saying “Yeah that $1000 was totally a mistake! /u/sedulas shouldn’t have that money!” Now your bank has to try to track you down and sue you to get the money back, they might not be able to find you or recover the money.
The solution is, until enough time has elapsed that they’re confident they won’t get that call from XYZ bank, the money either won’t show at all in your account, or show as “uncleared” (it’s there but you can’t use it yet).
The system works this way because its rules were designed back in the days when everybody kept track of transactions by hand on paper. When you work that way, you could have problems if customers are transacting while the clerks were updating their files. So the lobby of the bank would close at 4pm. Then the clerks would all go to the back to organize all the day’s transactions and updated everybody’s balances, with no interference from incoming transactions.
Of course just about everybody uses computers instead now, but when they started putting the computers in, they were all programmed to use the same rules as the paper-based system. After all, if your bank’s the first one to implement a computer-based system, it still has to do business with everybody else who uses the paper system.
Now it’s inertia and decentralization. If the banks change the rules, they would all have to change at once. Changing the basic rules of the financial system sounds risky and expensive, something done for convenience of consumers with no direct profit. “Risky, expensive, and no direct profit” is the sort of business activity bankers reflexively try to avoid.
Account-to-account transfers usually run on the ACH network. This is slow because each transaction is bundled together with a bunch of others and sent out the next business day for a human to review for typos, fraud, etc. This makes the transaction costs really low but also makes it slow.
Debit cards run on a separate network that handles transactions individually and instantly. This makes it much more expensive, but it’s still only like 10-20 cents per transaction, so sometimes stores and service providers (like Revolut) will just eat that cost to make their customers happy.
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