Before I commence my rant (I mean, this new topic), I should note that I am not an expert. I would love to hear from someone who is, and who can corroborate or correct what I write here.
I have recently found myself growing increasingly frustrated by financial institutions of various brands, and the countless ways they use my money to make theirs. Today’s area of frustration is one that I suggest Choice could and should campaign on, as it is both embedded into Australia’s financial system and is hidden from the average customer.
If you have ever needed to transfer money between financial institutions; or to bank a cheque; or to perform one of dozens of other financial transactions, you will find that it ‘takes time’. Transfers tend to take three business days (which presumably do not include ‘bank holidays’), while a cheque can take three days or more to clear.
This is logical, of course. The bank has to:
- make sure your account has sufficient balance;
- identify the bank to which your money is going;
- write up all the transactions in and out of the bank to other institutions;
- prepare a record showing – for every other financial institution – whether it is due to receive money from them or pay money to them;
- send a letter to the other bank, seeking agreement on the amount owed or due;
- transfer the money, and confirm the amount transferred.
The receiving financial institution has to do much of this in reverse. It’s a nightmare of writing down all the figures, calculating them, getting them agreed…
Except computers! Fibre-optic networks! There have been slight changes to the rules over time – it used to take seven days to clear a cheque – but what is in place now is a rort! The time allegedly needed to process a transaction varies between institutions, but in most cases it should be almost instantaneous. Imagine a stock trader being told they would need to wait three business days for their transaction to be processed – they would demand a Royal Commission!
While I do not work within the banking sector, I cannot see how any modern financial transaction should take more than a couple of hours. It may have taken longer in the past, but now banks are making profits out of your (and my) transfers on top of whatever fees they choose to charge.
I have a bill to pay, for $1,000. I am paying it via Bpay and the associated three business day wait. Like many people, I keep most of my money in a (relatively) high-interest-paying account. I need to withdraw it from that account at least three business days before the bill is due, in order to make sure that money gets to where it is intended on time and I am not charged late fees.
The effect of this single transaction is that I am losing three business days of that slightly higher interest. In fact, I am losing three business days of any interest – because my money leaves my account the instant I approve the transaction! The person or business on the other end is not getting that interest, though – because my bank has three business days in which it can do what it will with my money and earn interest on what should be in the hands of either the payee or the payer!
The Commonwealth figured this problem out shortly after it decided that all of its individual agencies could go off and make their own banking arrangements free from the strictures laid down by the Department of Finance (DoF) and the Reserve Bank of Australia (the RBA). While the agencies could not invest their money anywhere but with the RBA, DoF realised a year or two in that the banks were making a fortune just on the balances sitting in accounts and on the money moving from point A to point B! It changed the rules, decreeing that all account balances were to be transferred to the RBA each night so that the RBA could invest the money overnight.
Now most of us don’t earn the kind of interest that the Commonwealth does – but we do value whatever we can get… and at the moment the banks are skimming off the top! There needs to be a change to banking rules to reflect improvements in technology and the speed at which money can be transferred. We need to stop the current casual attitude to money-in-motion, which is undoubtedly earning financial institutions many millions that then go into those crazy profits they announce year after year. And this issue requires not just the Royal Commission that needs to be conducted into our banks but a technical review of the existing standards that clearly need an update to bring them into the networked age.