The business of delay in banking

Money
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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:

  1. make sure your account has sufficient balance;
  2. identify the bank to which your money is going;
  3. write up all the transactions in and out of the bank to other institutions;
  4. prepare a record showing – for every other financial institution – whether it is due to receive money from them or pay money to them;
  5. send a letter to the other bank, seeking agreement on the amount owed or due;
  6. 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.

Example:

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.

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I can only add limited information. While this is probably not the real deal it is a start.

Regarding share transactions, the buy/sell is almost instantaneous to hours, for good til cancelled could be months, or never if the price is not struck. If it trades the monetary settlement follows by two days. BUT, most (all?) of the online trading platforms require your money to be tied up in the settlement account prior to issuing the trade. The trade can follow by seconds to months to never while your money sits idle, unless you operate from a margin or special trading account, which have other issues regarding interest accrual such as 1/2% interest for balances or 5.2% when on margin.

Regarding Bpay, we have a good discussion on this thread

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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.

I’m not entirely sure this is what you are referring to, but if you have been told by a BPAY biller that you need to pay before the due date to “allow funds to clear” - you have been lied to.

BPAY Billers sign up to BPAY using an agreement called something like “BPAY Biller Agreement” - there are various forms, and each financial institution has their own cover and tweaks, but the guts of it is the same across all that I’ve seen. Here is the NAB Short Form BPAY Biller Agreement for example - more can be found with a search of course.

Essentially what the Biller agrees with the financial institution and BPAY is that IF it is a banking business day (ie a day your bank can transact business with the RBA), and IF you initiate the payment before the end of that business day (eg NAB is 1800 Melbourne time, CBA appears to be 1800 Sydney/Melbourne time - interesting they reference a cutoff in a time based on two politically diverse areas, what if Vic abolished daylight saving and NSW didn’t…) then the acknowledged “Settlement Date” of your transaction is that day on which you initiated the payment. Same applies if you schedule the payment for a future date, your financial institution will process the payment on that date as the “Settlement Date”, as long as it is a banking business day.

So if your bill was due Friday 8 September and you logged on to your online banking and initiated the BPAY payment to that biller before it hit the payment cutoff (1800 EST) then you paid on time. The fact that the biller won’t even know you paid until a couple of days later when they get the payment advice containing the “Settlement Date” and the fact that they wont actually get your money until a day or two or more after that is entirely their problem and not yours.

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snap :slight_smile: … wow, I need to settle down. Billers bullying people and spreading misinformation really gets me. I’ve challenged a few - and won the argument against all of them except the Department of Human Services, known colloquially as “Evil Personified” … unfortunately winning an argument against the government, won’t get you the help of the government - and the ombudsman are spineless and limp… but I digress and practice my calm breathing … :slight_smile:

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I like what you say, @draughtrider , but my credit card issuers both say differently (as does my bank).

From a credit card statement issued earlier this week, in the Bpay section of ‘how to pay’:

We recommend that you allow up to 3 business days for us to receive your payment.

I will admit to not keeping exact track of when my payments have been received, beyond noting that they tend to be received earlier than ‘three days’. Having said that, my bank has also in the past issued warnings when I schedule a Bpay transaction, about how long it ‘might’ take - and still only says that my money ‘should’ be received by the nominee on the following business day.

So I can be brave, or I can make absolutely positively sure that my CC is paid on time. I choose the latter.

Thank you @PhilT for that information - I clearly do not spend enough time navigating all the threads here. It’s all this writing I find myself doing :roll_eyes:. (I am sometimes amazed that people read it.)

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Can I say “don’t trust your bank” … I’m sure you don’t anyway.

What BPAY has to say

“Will” being the operative word.

The way I see it - “we’ve had your money free to use while it is in limbo forever and a day, now that we don’t, we’ll lie and bully you into giving us the ‘in limbo’ time anyway … fear is our weapon” :-)"

“NOBODY expects the Spanish Inquisition! Our chief weapon is surprise…surprise and fear…fear and surprise… Our two weapons are fear and surprise…and ruthless efficiency… Our three weapons are fear, surprise, and ruthless efficiency…and an almost fanatical devotion to the Pope… Our four…no… Amongst our weapons… Amongst our weaponry…are such elements as fear, surprise…”

Seems appropriate for banks. Not sure if banks are what Monty Python had in mind … but it seems to fit …

BPAY aside:

For all other transactions your original post has valid points. We live in the digital age where money is stripped from our savings and credit accounts with ruthless efficiency - the moment we click the button - but from there it travels all over the planet, who knows, financing orgies in Greece or terrorism in the middle east before it arrives in the account of some vendor who sold us Electrickery (to quote Cat-weasel) or some other mundane product or service. Even payments made, seem to tour oblivion before arriving in some simple place, like the place we put them. For days.

Why aren’t the banks accountable for this? big money? politics ? silly me :slight_smile:

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The technicalities are apparently that if a Bpay is lodged by the bank’s last cut-off on the due day it cannot be assessed a late charge, but the payment might not show on your account for 3 days.

A validation of the above is that my council uses BpayView for rates. It is an invoice sent as a click and remit Bpay. The embedded remit date is always the invoice due date, not 3 days earlier.

Of course they are happy to recommend you pay early, even if just by 3 days. :wink:

On the flip side I have an auto debit for my credit card. The payment always shows as posted on the credit card on evening of the due date, but it does not show as taken from the payment account at another bank until the 2nd day afterward. I suspect a lot of routine transactions are still cleared by old time batch processing done on routine schedules, with logical tapes transmitted between the banks overnight. That would explain both lags.

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Wait - I’m paying for orgies in Greece, but don’t make the guest list? That definitely deserves a Royal Commission!

Yes, it appears that I am under-edumacated when it comes to BPAY, and failed to see that other thread.

Speaking of the speed of money (or is it the speed of greed?), US financial market speculators have spent hundreds of millions of dollars drilling holes in mountains in order to run fibre-optic cables more directly between New York and Chicago. How much more directly? the new cable makes it possible for financial market transactions to move between the two cities 3 milliseconds - 3 thousandths of a second - faster than the existing lines! The round trip has been cut from 13.1ms to 12.98ms. Wait - that’s not 3ms, it’s 0.12 milliseconds or 120 microseconds! The New York Times got it wrong! (They shouldn’t be too embarrassed - so did Lightwave, a website devoted to network technology!)

An incredible example of how time is money, and 0.12 milliseconds can make the difference between profit and loss on some of the more speculative trades that financial markets continue to invent.

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This sounds good on the one hand, but real-time bank transfers already exist. They currently cost too much to be used regularly by the average person, but I can see no reason why Real Time Gross Settlement (RTGS) (the Australian version is explained here by the Bank of Queensland) should not already be the free, preferred means of transferring money from one financial institution to another.

In other words, the systems are already in place. The banks seem to be clinging to an old, overnight, batch transfer model whose day is long past. Ve haf ze technology!

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Not too many years ago I did some exploratory work with one of the majors. I will avoid what it was to protect the guilty, excepting most large banks would consider it the core of their business. The bank was a few decades behind the international norm and some of the employees knew it, but the infighting for ownership of change and intransigent procurement processes caused it to go no where slowly.

Would that be a surprise to anyone?

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Didn’t we cover that earlier? Our chief weapon is surprise. Surprisingly I’m only surprised these days when something surprising happens, which is increasingly rare …

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Hi,
I have had a couple of issues regarding timing of transactions. My current banking institution has both a 'transaction date" and an “effective date”.

When I deposit or issue a personal cheque, the date of the cheque is the “effective date”. Whilst the date of the transaction is the date it is entered, interest is calculated based on the “effective date”. This applies also to on-line transactions entered over the week-end or on a public holiday.

In terms of BPay, it has been explained to me most financial institutions will run there transactions tapes at different (or multiple) times during the day. The order in which transactions are processed cannot be guaranteed, and as such deposits/payments may “miss the boat” for being processed by the due date even though you have entered them on the due date.

To that end I have always entered BPay transactions as soon as they are received, for payment on the due date, and as such have not had any problems with payments not being received “on time”.

With a couple of notable exceptions.

  • the declaration of the public holiday the Friday before the grand final; and
  • when there has been a major disruption to processing due to technical difficulties by one or more financial service providers.

Given that the order of processing transactions across all financial institutions, and the reliability of systems is beyond the control of consumers, where the transaction can be verified that it was processed with sufficient time to meet the “due date”, no penalty or interest should be applied.

Whilst, there is considerable advancement in “accessing” our money in a more efficient and streamlined manner, it should also come with a level of accountability for issues that are beyond the control of the consumer.

I would also like to see all service providers with BPay facilities, be required to provide BPay View also. Who wants to log into multiple service provider sites every month/quarter to access/pay their accounts.

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Before EFT/Computers I use to have a job picking up Cheques twice a day from all the major banks in my city then transporting them to Brisbane. These cheques went into a room and the banks after verification passed them manually between each other. They told the customer it wouldn’t clear for 7 days when it only took one. If you paid extra it would miraculously be cleared in three days. I also had a small cheque deposited into my savings at the Martin Place Comm Bank when we only had passbooks. I went in a week later to get some money out but the cheque I deposited didn’t appear in the book. I enquired by phone and in person and they couldn’t tell me where it was. A miracle happened and a month later it appeared in my passbook but with the date I deposited it. Another 1980’s miracle was when we transferred from being paid in cash to ATM/EFTPOS. As a joke one of my fellow workers tried his new ATM card on a machine and found his entire pay, due that Thursday, in his account on the Monday before. once word had got around and people were withdrawing their pays early the Banks soon closed that door. The Banks receive all Pays and all Welfare payments and they know that most people (except the poor) don’t spend their entire wage before their next one. So they bundle it together and invest in various instruments like the overnight futures exchange and you don’t see a cent of the profits made.Oh and when WE first agreed to electronic wages we were suckered in as the banks said they would never charge you when you withdrew your savings now there are eftpos fees especially if you don’t use your banks ATM. Also as you borrow for a house you actually pay the amount off 3,4 or even 5 times depending on interest rates and the life of the loan, again they re-loan that money out generating 3,4 or 5 new home loans but they will foreclose on you in a nanosecond. A Royal Commission into the whole gamed system is needed.
The Computers working at the Banks have higher fees every year to operate yet out in the real world computers are smaller, more powerful, process faster and demonstrably cheaper,

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But those ‘highly skilled programmers’ , software licenses and maintenance, and system administrators who keep it humming cost more and more every year. The human and licensing payroll far exceeds the cost of hardware and electricity, and has for quite a few years now. Not considering the costs of over-employed managers who do not understand computers and communications and the people who operate them, understaff people who do, and have to cover those multiple days down times we all are growing to love, more and more often.

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Just on the computer side of banking, ‘it’s complicated’.

Banks, along with industries such as airlines and some parts of government, started to computerise very early because they could gain enormous advantages by so doing. Unfortunately, after those initial investments in infrastructure they have spent the following fifty years patching and expanding rather than upgrading - because patching is cheaper. Need to be able to communicate with the other banks? Let’s put a program on top of this one, to let us do that. Want a fancy interface with text rather than printer tape? We’ll build a shell. You want a GUI with that? No problem - it sits in that server down the road.

The first big problem with this came to public attention in the years up to the new millennium - with the ‘Y2K bug’. This wasn’t a bug, it was a design feature to save memory by only providing two digits for the year. Programmers in the 1960s had to deal with enormous resource constraints, and saving those extra two digits made their programs a lot smaller. They knew this was not a long term solution, but of course the systems they were writing would be replaced long before it became a problem… except that they weren’t! It was a case of

Boss, our computer systems need to be upgraded to cope with transfers to other banks.

Upgraded? Can’t we just put something minor on top rather than spending all that money?

Well, I suppose…

We don’t have the budget - the shareholders would squeal blue murder!

And then all of a sudden a major problem ‘appeared out of nowhere, totally unpredicted’.

To fix things for Y2K, the industry had to find people who still knew how to program in languages that were used back in the days when dinosaurs walked the earth - and paid through the nose as programmers came out of retirement in order to fund their new summer mansion. Of course, there was still an underlying problem - the stuff was still all written in Cobol and Fortran and who-knows-what else.

Our banks need billions of dollars to bring their entire computing environments into the 21st century - and nobody is interested in spending that kind of money when it could go to the shareholders. Unfortunately, the Y2K fixes only kicked the can down the road - in 2038 or so there will be a similar problem, and fewer programmers with the skills to fix it.

Between now and then, expect that banks, airlines, and all sorts of other places that have been computerised since Y0K will have increasing quality of service issues, driven by that incredibly old code that sits at the bottom of this growing tree of ‘plugins’ and ‘expansions’. Even Microsoft Windows is younger than this software - and it takes backwards compatibility to crazy lengths.

So yes, it will cost more and more to maintain these dying systems. If you are just starting out in programming, and have the opportunity to learn Cobol, grab it with both hands! Competitors for such jobs are dying off around you, and it is now an incredibly valuable skill.

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I like to determine what something is actually costing me to see if it is worth getting upset and stressed over.

If you missed out on 5% worth of interest on $1000 for a whole year it would equate to $50. For 3 days 41 cents.

Personally I would not let myself get upset over either of those amounts.

On the other hand, my bank has accounts with higher interest rates than normal (or nothing) and I can transfer that money into the account that I BPay from instantly, and as the BPay goes through on the day it is due then I am maximizing my interest.

Except for monies that you use to earn interest (saving for something or an investment) I find these days the interest rates are so piddling as to not be worth the effort of moving money into them short term.

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For 100,000 customers that is an additional $41,000 directly to the banks bottom line.[quote=“frsampson, post:16, topic:14489”]
I would not let myself get upset over either of those amounts…I find these days the interest rates are so piddling as to not be worth the effort of moving money into them short term.
[/quote]

That is part of the psychology. Few if any individuals would worry about $0.41 but across the numbers of accounts so affected it is real money for the banks so they can withstand criticism.

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I absolutely agree. In 2000 our sons were in Europe travelling. They would text when needing some extra cash
I would get up (usually mid night due to time difference) & get onto computer & transfer funds. Within a minute I’d get a text saying thanks and job done id head back to bed. That money was from my ANZ account to our sons ANZ account. As cash. But now 17 years later that can’t be done. Not even in branch. Why? Because greedy bastard banks hold our money till THEY choose to transfer it.
If I pay my ANZ visa from my NAB account first thing in morning of due date I am charged interest because SOME BANK is holding the money. But it’s not me.
Angry. Technology should make transfers of cash FASTER not slower. And if transfers are done by 18:00 I’d believed the major Australian transfers were done at 02:00am so should be in bank before 09:00 next morning.
Even then some BANK has had the money for a day getting interest on it. Wrong. Bring on that banking royal commission.

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To add to Phil’s (@PhilT) comments, perhaps some people may remember a scam from many years ago, when some clever person/people skimmed off the rounding error (one and two cents) from transactions into their own account. None of the account holders noticed the one or two cents missing either.

I can’t remember how much they amassed, but I think it was in the millions of dollars. The banks are doing a similar thing.

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Are you sure you’re not thinking of Richard Pryor in Superman III?

Unfortunately that clip ends a little soon. The next scene shows the company bosses trying to figure out the mastermind, the amazing genius who managed to steal all this money - until they hear the screech of tyres as Richard Pryor (the newly employed programmer) arrives in the car park driving his new Ferrari. ‘Our master criminal will be lying low after managing to pull off a heist of this scale…’