Why are some banks able to transfer much faster than others?
Convenience has been one of the chief goals of technological advancements, and indeed many advancements dating back to before even the agricultural revolution twelve thousand years ago. From the first leger in the middle ages (allowing a credit-type payment system) to the telegraph in the eighteen hundreds, financial convenience is no new kid on the block either.
Of course, digital technology makes the developments of eras gone by seem rudimentary, and what’s more, these developments are so recent. Let us not forget that before the nineteen eighties, one had to authenticate a credit card transaction with a phone call and by imprinting the card on a paper slip!
But to this day, the developments in financial transfer speed are not at all uniform. Let’s take a look at why some banks are able to transfer much faster than others.
Well, for starters, it might not be your bank but the fact that the transaction is ending up in a foreign account. International transactions take longer because they require intermediaries. A SWIFT code is the main instrument for this process. It is used so the two banks can identify each other. However, the speed of international transfers also varies from bank to bank and, indeed, currency to currency. If a strong currency is being converted to a weaker currency, for example, then not only does that take longer to convert, but also the destination bank might be slower to process the funds due to their level of infrastructure and technology. There is also a matter of two different fraud monitoring procedures which can vary greatly and not to mention the disparity between different business hours/holidays when dealing with different time zones. SWIFT has developed GPI (global payment innovation) to mitigate these costs of time, although it is still far from perfect.
We are all quite used to international transfers taking their sweet time, but what about domestic ones? Why are some banks just a speedier option? Well, banks use an ACH (automated clearing house) which is an intermediary system that processes money entering and leaving the account. You may have seen the name on your bank statement. It is not your bank but a third-party association that accounts for all transactions across the states and so must activate its process in a singular wave. Considering the country transacts the best part of a hundred trillion dollars a year, the only time-efficient way to use ACH is once a day. It would be numerical chaos otherwise.
Now you might be thinking, ‘hang on, when I buy and sell online, the transfer is instant’. In all likelihood, that is because you are using a digital wallet like PayPal, and the transfer is instant, but only within the platform/your digital wallet. Next time you use PayPal, check your bank statement, and you will realize the money is not there yet, and might not be for the best part of the week.
Maybe you are a calculated risk taker and try your hand at online gambling, then wonder why your wins take forever to come through. That is because most online casinos do not offer instant withdrawals, but most does not mean all. Time2play has compiled a list of all the instant withdrawal casinos; check it out! This is, of course, dependent on your bank as well – if transactions are still sluggish, then you need to start using an E-wallet or change your bank to one that uses something like one of the following systems.
You may not be surprised to find out that banks using FPS (faster payment system) offer some of the fastest transaction speeds. As a UK banking initiative, it is only used for transactions in sterling and is used by British banks. As for America, RTP is the development that separates the wheat from the chaff with regard to speed. The irony of the speed system being the slower of the two in terms of completion should be pointed out: FPS predates RTP by about ten years.
So, what is RTP? It stands for ‘real-time payment’ and is the digital infrastructure (currently being pioneered by ACH) that banks are currently flocking to use. Here is a list of the current participating banks. The Federal Reserve has an answer, however, and plans to launch similar technology (FedNow) in 2023.
If you deal only in cryptocurrency, then you will be familiar with the concept that not all coins are the same. This is certainly true when it comes down to transaction speeds although Bitcoin is the top overall cryptocurrency, it is not the fastest (3-7 transactions per second within ten minutes of the average crypto transaction time).