Why is wire transfer so slow and expensive in the USA?

Question

I’m a foreigner but work for a US company. The company gave me some stock (on E*trade) which I sold, so there is some money, and I’d like to wire the money to another account, which is also in US (firstrade)

The wire took several days and charge me 25 US dollars. In my country, wire transfer between different banks is near instant and charge less than 1 US dollars.

So my question is, is it how wire transfer normally works in the USA? Or perhaps it’s because I’m a foreigner? If it’s normal, what’s the difference between US bank and other countries’?

In: Economics

Answer 1

In EU, your banks probably transferred via SEPA payment rail and payment cleared quickly because the payment details were reconciled to your account quickly (ie it was a common transfer between your accounts). Sepa is considered the US’s ACH equivalent and typically sent in batches, used for low-value payments, and clears 1 day. It’s cheaper for banks to send. Payments were also sent with more payment details like your name account number address etc to reconcile to your ownership of funds.

US (Fed)wires are same day and are considered “expensive” payment form because its final and irrevocable. Institutions typically use wires for high value transfers for this reason, and a retail user like yourself can get by with using ACH (typically free and 1-2 day settle). Your wire transfer probably took a few days to reconcile to your bank account because the receiving bank didn’t recognize the funds belonged to you from the payment details (ie it was the first time receiving a transfer from E*Trade for credit to your account).

Most countries have “wire” and “ACH” payment rails for high value and batch transfers, respectively. Most countries also have fast or real-time payment rails, but its adoption with banks is mixed because of implementation costs. The payment rails are also managed by different governing bodies depending on the regions. US Fed (the central bank) handles wire infrastructure vs NACHA handles ACH. In EU, ECB and EU commission handles SEPA infrastructure. Payment communication is done via SWIFT or proprietary batch methods (like ACH).