Comment by mjfern | Hacker News Reader

Comment by mjfern | Hacker News Reader

>In addition, you only get the bank’s confirmation of the payment 3-5 days (in the US) to 3 weeks (in some EU countries) after the payment attempt.

I find it surprising that it's been 15 years since the commercialization of the Internet and (near) instant global data communication and it still takes banks 3-5 days to confirm payment (e.g., the time it takes to send a physical letter, coast-to-coast, via the USPS). This is the timeframe of a standard Electronics Fund Transfer (ETF) for bill pay, bank-to-bank transfers, etc. The only alternative, as far as I know, is a wire transfer, which is a tedious and expensive option.

Does anyone know what's preventing the U.S. banking system from improving its electronic transfer capabilities? Given the importance of the free flow of money and goods (and liquidity) to our economy, it seems like the quick movement of funds would be a significant priority for our overall banking system.

(Note that if banks could confirm electronic transfers within a few seconds (and if we added an extra layer of security beyond simple passwords, such as a challenge/response system), we could significantly reduce the occurrence of fraud. Near instant confirmation would also alleviate, or eliminate, the issue of short-term credit mentioned in this article.)

Agreed. Any software engineer knows it shouldn't take much more than 1 second, tops for a number to be incremented in one computer and decremented on another, separated across a network. Roughly speaking. Now add in fudge factor to account for a long and possibly unreliable network path (the Internet cloud, or similar private banking inter-network) and for the need to perform an atomic and 100% bulletproof and auditable transaction, and we can envision a scenario where the total latency between when the request is made and when the deal is done and put to bed as say 1 day, tops. And that's being very generous on implementation complexity assumptions. So when I hear things like 3-5 days, a week, 2 weeks, that's getting into insanity land. I smell either really old skool legacy systems in terms of process and hardware capabilities, or, something fishy like a sneaky way to allow the middle-men to earn "carry interest", or whatever, during that bloated time gap. Possibly also some government regulation which adds an enforced, artificial delay. But in terms of what are the actual minimum technical requirements to carry out that task, a few seconds would be generous, an hour would be padded and a day's wait would be bloated to hell. I could even say a day if each bank wanted to run all transaction requests as a single batch performed nightly, with human auditors being able to look at reports both the day before and after to "sanity check" results. But again, that should cause a 1 day delay at worst.

I am not a banking programmer, so take with grain of salt. Perhaps there's some evil super-complex-and-unavoidable issue at play, but I doubt it.

if banks could confirm electronic transfers within a few seconds

Banks do this millions of times each day on the global ATM network. I can swipe my bank card at most any ATM in the world and within seconds the funds are removed from my account and dispensed into my hand.

In that case, the card is indirectly linked to my bank account. It's only when you know the exact bank account and routing number from which you want to remove the funds that you're forced to use the archaic ACH system.

Clearly the technology for instantaneous confirmation of funds transfers already exists, but it has yet to be expanded beyond its original purpose.

I have been a banking programmer for some large European banks, so whilst I can't speak for the US system I can describe the way ATM transactions work in the UK, Germany & Switzerland.

Making a withdrawal from an ATM/ePOS does not debit your bank account immediately, but it does reduce the limit (i.e. available funds) on your card immediately. Checking your "balance" at an ATM shows the card's total available funds, not your bank account balance.

ATM operators are often not the same as your bank, even though they may show your bank's logo at the top. There are fees at every stage of the transaction so ATM operators and ePOS transaction acquirers can decide whether to ask your bank/VISA etc whether you have the funds. For small, low risk transactions they will often wait, preferring to batch a bunch of debits to a single institution at a quiet (cheaper) time of day.

Your card is reconciled with your bank account daily (usually daily). A payment to a third party takes longer - the payee's bank needs to complete reconciliation too and, as other commenters have pointed out, the network breaks sometimes.

Banks can improve the time it takes to transfer funds to third parties and have done so in many countries but it has taken government intervention. The float does play a part, but getting competing banks to agree to a standard is almost impossible.

Side note: Your card has many, many limits most of which you will never encounter. Examples: total cash per ATM per day; number of cardholder-not-present transactions per day; total spent in gambling establishments per month.

Note: Mix of facts and speculation, take with grain of salt.

Banks (and credit card companies) make a lot of money on the float, so it's against their natural incentives unless they can win more business as a result. I think they probably could, but it would take a coordinated roll-out of new products or acquisition/integration with an external company... which is difficult to do because of regulation. So you're in a position where you'll either need more or less regulation to do it - either the government mandates it, or the government deregulates and a competitor starts up who currently doesn't have market share, so has nothing to lose by introducing the new features.

I was a NACHA member for the better part of the past year so I've talked to many of the bankers, consultants and government-types involved with running the ACH network about this.

It's not about the float. It's about the up-front investment in the standard, which millions of bank customers have already implemented. It's also about the risk of allowing instantaneous funds transfers; the current delay allows for at least some mitigation. It's also about the fact that there is no new standard yet. (Based on what I know about NACHA, there won't be for a while.)

What's cute is that much of the time when I pay for something it's instantly charged to my card - my account balance reflects the deducted money, whether it's been actually moved out to the other account or not. But if a merchant gives me a credit/refund, it can take several days for that to show up - some places will say "two billing cycles" (although they have no idea how long my billing cycle is - I presume they mean their own internal cycles).

Money already seems to be moved somewhat instantly, but only ever out of my accounts.

Bingo. This is why it smells like something fishy. Like the banks are trying to earn carry/float interest. And possibly the government is in bed with them, by adding some regulation to impose an artificial delay, to supposedly add safety/caution, but in reality to give the banks cover to earn more profit on this carry/float interest. This is my best thumbnail theory, anyway.

That's because the plastic card interchange works in real time and ACH does not. Even your charge cards have a delay, though. There's a difference between authorizing a purchase and capturing the funds. Once funds are captured there's still a batch settlement process that happens each day. So it's not really that big of a conspiracy; the players aren't even the same.

Agreed on auth/capture/settle - it's possible it could be different though, we just have an entrenched group of players that prefer the status quo.

It definitely could be different. That's why I'm working on FaceCash.

The banks earn by investing the money while the money is "in transit", so they want to keep it there as long as possible. Not all banks do this. I can transfer money from my account to friends' accounts and they get the money in seconds.

That's what I like about Canadian banks. They have a system in place they promote as sending money via email. You don't really send it through email. It's simple a system all the major banks in Canada have adopted. I can transfer money from one account to another, quickly and easily, with minimal fuss. It takes 30 minutes, and I believe this is more for security reasons then purely technical reasons. It makes sending money in Canada so incredibly easy.

Yes, I lived in Canada for three years, and had the impression that the electronic transfer capabilities of their banks surpassed what's available in the U.S. Perhaps this is due (in part) to the fragmentation of the banking system in the U.S.? In Canada there are essentially five banks that dominate the banking industry - see http://en.wikipedia.org/wiki/Big_Five_(banks). There is also more regulatory control of banks in Canada, which likely makes it easier to require standard operating procedures, consistent infrastructure, etc.

I remember payments in NZ being <1 min -- possibly seconds -- 10-15 years ago, as there was a single clearing-house for all EFT, nationally.

Same thing in The Netherlands, I can transfer money to my dad and it shows up almost instantly in his account.

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