It seems like electronic transfers can take 2 - 3 days to complete. For example, when I ask my online broker to transfer money from my checking account, the money won't actually be available to trade with until the third business day.
Why is this? Don't banks just use some kind of EDI? Is there some kind of tangible benefit to them of having the additional time (other than the banks hanging on to the money a little longer)?
I was perplexed by this until a few days ago when it finally clicked in a meeting with our fraud and money laundering teams in work (I work on trading surveillance). Apparently fraud detection and prevention of money laundering are currently the biggest delayers when it comes to electronic transfer of funds, checking that the transferring party has the funds to transfer etc. takes no time at all. It takes some time for a bank user to "release" a funds transfer; once it has been initiated it is put into a queue to be reviewed as potentially fraudulent or money laundering activity. Almost every transaction has to be monitored for this from a legal standpoint. The compliance process can take multiple days. Once the process is complete the request also has to go through "settling" which is an end of day process whereby banks "net off" their customers' transactions with other banks and only pass the net value between them. This is an end of day process by nature so only happens once a day meaning that once all of the checks have occurred any transaction will take until the end of the day to crystallise for the bank and so get credited to their customers' accounts.
Incidentally in the UK and Europe banks are moving to streamline this process through "faster payment" systems (that is the industry term for the technology) so that customers see the effect within a few hours (2 in the UK currently) and then the banks net off at the end of day as usual. This means reducing the time it takes to do the checks that have to be done using specialist software to flag transfers as potentially fraudulent or not and making banks' processes much clearer and faster.
When Laurence Olivier took the role of Douglas Macarthur in the Unification Church's filming of Inchon, he told the press, "People ask me why I'm playing in this picture. The answer is simple: Money, dear boy."
Banking systems are typically decades old and subject to innumerable legal and technical restrictions.
Moving money more quickly from one client's account to another would definitely be in the clients' interest, but
