Bank Transfers

[bleep]

I do a fair number of international transfers, and the 3, 4 or 5 day clearing time really gets to me. Surely in this day and age of instant communication of information, this sort of thing should be instantaneous? It seems to be purely a mechanism for banks to make more money, and I'm wondering how it is that they seem to get away with it? I did a brief search, and there doesn't seem to be much outrage about the topic, so is there another reason that I am missing?

[Jordus]

There are government regulations and such put on the banks to help prevent fraudulent/illegal transfers from making it to off-shore/untraceable accounts. I would assume this is the biggest hindrance from making them faster.

[RobertJasiek]

Immediate money transfers are possible if all involved banks have agreed to use a suitable system for it. E.g., in Germany a few banks cooperate to achieve instant transfers. Overall, the average speed has increased in the EU since the EU Commission became active a bit. World wide transfers are not so easy; typically they involve an intermediate bank. PayPal is pretty good and usually transfers money within minutes. Sometimes it takes longer for no apparent reason, sometimes because of an apparent reason (e.g., the sender might have to put money on his account).

[jts]

I'm not sure what country you're in, but within the United States there is a similar clearing time for domestic bank transfers, and in fact most other electronic transactions. (You can normally call your banker to get confirmation the transfer has gone through within the hour, but notionally it seems to me that the transfer always says "allow 2-3 business days".)

It's worth remembering that the bank probably is not making much money from your transfers. They are almost certainly offering you a suite of money-losing retail banking services in order to get a chance to make money on fees and penalties, or the chance to offer you brokerage services, or something similar. The large customers (on whose high-volume transfers a bank can profit) almost certainly have lines of credit that make a 3-day clearing time a hiccup.

The basic issue with clearing is that all banks try to clear all of their obligations to one another simultaneously. Clearing each tiny transaction as it occurs would be useless if you knew that a million transactions had occurred but didn't know the actual position of the bank as a whole. This is the same basic reason why traditionally stock exchanges have brokers - you want to clear all transactions in a given security at the end of each trading day, so that you can verify everyone's position on a periodic basis. I believe international clearing takes slightly longer than domestic clearing because the banks are not necessarily clearing their accounts on the same period or at the same clearinghouse. There's no particular reason that clearing in 2012 would take any less time than clearing in 1912 (when, to paraphrase Keynes, a man could buy and sell all the commodities of the world without getting out of bed in the morning).

I'm not sure whether Jordus offered his point about regulation as a guess or as a fact. Aren't all the records that e.g. the IRS or Treasury needs to investigate fraud, tax evasion, or money laundering generated electronically and automatically on all transfers larger than 10k? So it's not as though there are scribes who need scratch out legal records in clay tablets before they press their personal seal into the original transfer. I also thought that actions related to money transfers are generally taken by freezing funds in the recipient bank, rather than by freezing the transaction. But you learn something new every day...

[BobC]

Use Moneybookers or Neteller.

Instant clearing between users and many sites. Withdrawal through international debit card.

Be aware that they are very aware of money laundering.

[bleep]

Thanks for the replies.

I'm aware the banks aren't making much off my transfers, but the sum total of all transactions that are held up around the world must be enormous.

jts, what you said about the simultaneous processing makes the most sense, but even that must start to fall away with today's processing power.

[jts]

Thanks for the replies.

I'm aware the banks aren't making much off my transfers, but the sum total of all transactions that are held up around the world must be enormous.

jts, what you said about the simultaneous processing makes the most sense, but even that must start to fall away with today's processing power.

I don't think it's a question of processing power (although I could be wrong). It's more a question of minimizing the need of banks to borrow money from other banks.

At the point when the accounts are cleared, banks that are running lower than expected on reserves need to either get short term financing, which can be a bit expensive, or liquidate assets, which can be very, very expensive. If you expect markets to clear continuously as quickly as the computers can make it happen, then banks can't have any reasonable expectations about the time-frame within which they need to to balance out their assets and their reserves.