The business of delay in banking

We didn’t get real time transfers in 2017, but there are articles suggesting it will happen in 2018:
http://www.apca.com.au/about-payments/future-of-payments/new-payments-platform-phases-1-2


http://www.nppa.com.au/

I am so over financial institutions using manually initiated batch jobs for processing financial transfers and bill payments (over the Xmas-New Year period this is even more apparent).

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I’d bet these ‘batch jobs’ are fully automated, scheduled with the same (worst case) timing and frequency they had when they were completely manual :wink:

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I’ve just noticed this problem with my Son’s account. He’s on the Autism Spectrum and is purchasing a model kit from Model-Space UK for himself which is divided into 24 interest free payments to make it more affordable.

When he was recently billed for the month his bank account said $xx.xx AUD was pending and we simply assumed that that’s what the final charge would be, plus the bank would add an International Transaction Fee after the amount was no longer pending. A few days later it’s no longer pending, but it is for a higher amount than was originally calcuated due to the differing exchange rate.

Luckily he didn’t spend the extra funds in his bank. As far as he’s concerned, what’s listed as the amount available is supposed to be what he still has to spend after leaving a bit extra in to cover the upcoming International Transaction fee which is also higher than what it would have been had the original amount been deducted instead of the revised amount.

Fair enough, the amount could have been less but for people who aren’t aware that there will most likely be a discrepancy they may end up not having the funds available by the time the revised amount is calculated. He doesn’t have a huge amount of money saved and lives from fortnight to fortnight with his Disability Support Pension. If it didn’t take so long for the banks to process everything we’d be happy just to pay the amount we’re quoted as pending regardless of if the amount goes up or down by the time it gets processed.

At least now we know we can make sure he doesn’t spend whatever’s remaining in his account while the UK transaction is still pending.

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What is displayed as ‘pending’ is the amount approved, not what is going to be billed. Each is based on the xrate at the respective times. You would not be the first people to be confused by it, and likely not the last. I have been hit with higher final amounts, as well as lower, but for some reason higher seems to be far more common. A cynic would think our banks might be manipulating the billing dates to get better rates for themselves, but occasionally get caught out (better rates for customers).

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History of cheque clearing and bank transfers (with some intermediate steps omitted):

  • Cheques were physically transported between banks (as r333r described)
  • Cheques were physically transported to a central “clearing house”
  • Banks exchanged data via magnetic tape reels which were physically transported, and processed by batch programs (this the era when it could take seven days)
  • Banks exchanged data via FTP (transmitted electronically), and the data processed by batch programs. Each bank could have its own schedule for running batch jobs but once day was/is typical.
  • Banks exchanged data electronically real-time. I think this started in 1980s when the international SWIFT standard & protocols reached Australia. But many banks continued to only process the data using batch jobs - keeping the delays of days up to a week.
  • 21st century: a system for real-time data transmission and real-time processing introduced in Australia called National Payment Platform (NPP) https://www.nppa.com.au/
    Facets/applications of NPP have different names: PayID, Osko, Osko BPay.

Success of NPP is dependent on multiple financial institutions adopting it!!!
For example since 2017 my credit union supports Osko, but the ANZ Bank used by a business I make regular transfers to does not support it therefore I cannot use my Osko to make those payments (they have to go via the old method so that ANZ can import them with their batch programs).

More info on SWIFT can be found at https://www.swift.com/ , http://www.bankswiftcode.org/blog/swift-system-in-banking-transactions/

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Anyone know when NPP for basic (BSB/account number) real-time transfers between the Big 4 Banks (including their subsidiaries) will be available?

Right now it seems to be a dog’s breakfast. You never know when the money will show up. Sometimes not at all in the case of a local credit union that must have had some teething problems. LOL.

I never wanted “real-time” transfers but I do want “predictability”. I want to know what to expect and I want to be able to verify expectations against reality. For example, then I know when to start chasing a bank for what’s happened to a transfer.

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Banks are still making a shedload of money by stalling on passing funds to accounts. Case in point, I was refunded the cost of the mattress that didnt work out for me, Paypal sent the money to commbank on Tuesday at 2pm, and I eventually received it in my account yesterday afternoon. So they had it for 2 nights just working for them. And given that my account is a CC, thats working for them too. shaking head in disgust

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In the old bank transfer system which PayPal may still subscribe to, the funds even though actioned by PayPal at 2pm, sits in a PayPal’s bank until processed as a batch (with all other transfers made during the same day) that night.

The transfer is received by Commonwealth the next day which Commonwealth processes that (Wednesday) night. It then goes into one’s account overnight/early Thursday morning.

If PayPal and it’s bank used Australia’s New Payments Platform, the transfer would have been almost instantaneous.

Commonwealth subscribes to NPP, so it appears PayPal isn’t subscribing to it or using it for transfers. I would be pointing the finger at PayPal and not the Commonwealth. The 2 day delay is most likely at the PayPal end.

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I believe this is a common misconception, as I understand it there is no money to be made in this way.

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@syncretic Short term 24 hour money markets indeed make money for Banks as I was advised by my Dad (my dad worked as a Senior Manager in the CBA), the 2 to 3 days is sold to customers as time in which to ensure that funds are gong to the right account, however the move to NPP systems sort of makes this a somewhat false statement as to why the delay. Indeed if you pay for a speedy clearance funds can be in an account the same day…

@phb the NPP system is reliant on the customer signing up for that, the “Bank clearing house” (really a interbank transfer system these days) pushes payments through same day or even within minutes. If I transfer from my Credit Union to my Bank the Bank takes 2 days, if I transfer from my Bank to my Credit Union the CU has the funds in my account within 2 hours. Both of these financial institutions have NPP but I’m not on a NPP system with either of them.

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A bank manager told me in the 1970’s that big companies would cash their payroll cheques on a Friday but place the funds to cover the cheques on the short term money market over the weekend, knowing that the banks would not draw the funds out of the companies’ accounts until Monday.

The banks woke up and started to draw the funds from the companies’ accounts on a Friday instead.

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Gee that is a long time ago @Fred123. The banking system is 24 x 7 these days. But some of their systems are still reliant on ‘batch’ processing methods that happen overnight.

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I doubt that PP would say the money had been transferred to my account if it had not.

Note “has been”, not “will be”…

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I knew a fellow once who was a merchant banker and he assured me that even small amounts can be aggregated and placed in a fund which is then sent to the overnight money market. Am I to assume he was telling porkies?

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It has been transferred, but in transit as outlined in an earlier post. It will most likely be sitting with either ECOSA or PayPal bank until it is processed as a batch EFT to Commonwealth who will be the Visa card issuer.

It is no different to paying a bill…where the money comes directly out of one’s account by not received by the billing company for 24-48 hours. While it is shown as deducted from your account, the money is awaiting processing by the bank on your end to the biller bank. When the biller bank receives it, then it processes it to deposit into the biller account.

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Worked in banking as IT support for over 10 years. @phb sums up the transfer issues well. There are processing delays at all stages.

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No doubt, but the question is are the funds in transit between payer and payee available to the bank for the purpose?

This article that quotes an official of APCA says no.

This topic was covered here The business of delay in banking

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Well I would say that any money that could be made in the interbank transfer systems would be dwarfed by the amounts companies can make by delaying payables (or refunding customers).
Every day they can avoid paying a creditor is a plus. If they have the cash in the bank or a money market vehicle, then that earns interest. If they don’t have the cash, then it avoids interest on short term borrowing such as overdraft facilities.

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They calculate interest for the users at the time the money appears in or is removed from the account. The fact that money can be in “transit” for some days eg you make a transfer after cut off on a Friday it may not appear in the receiver’s account until Tuesday (even though they say they make multiple transfers a day). Relying on what APCA says is relatively true ie your money is not the earner, it is the funds already held by the Bank that are then free to be invested. My father was able to invest his spare cash the same way as part of his retirement income stream using his unencumbered funds before a bill was due to invest for that period with the Bank, the Financial Institution makes very good interest rates on these short term placements either as loans or investments.

As an example of what can happen is Centrelink payments are made to the Financial Institutions up to 2 days before they are to be credited to the accounts, they are embargoed from early release but as the Bank now has X amount of “spare” funds it can invest a similar amount of it’s “own” money until that embargo date is finished with. Only immediate payments for Centrelink customers are treated in a much more speedy manner. But does the cash really care if it is “embargoed” or if it is the Bank’s own spare funds…just paper figures really.

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How is it there are funds free to be invested if the money has not left the payer’s account?

This is not relevant. Your father’s spare money was available to him until his bill was due and was available to be committed short term to other investments. This example is not evidence of that being the case with bank transfers, that availability is the matter at question. You are assuming your conclusion.