Begs the question - why are wire transfers so expensive in the US? Most banks here charge $25 (and also make it difficult to execute online), yet you can send a check for free. Doesnt make sense.
The only sensible application I've seen is ING's person2person payment application that allows an ING customer to transfer money for free to anyone with an email address. The recipient just has to enter their bank's ABA number and account number.
> "why are wire transfers so expensive in the US?"
Regulatory capture. There's a ton of financial incentive for the banks and processing networks to push credit. Instead of a simple processing fee that gets pushed to near-zero, they can get a percentage transaction fee from their monopoly network, possibly participation fees from the merchants, lock-in/network effect, they get to push credit debt to increase revenue from the purchaser, they can run 'promotions' and 'rewards' programs to stimulate use, etc.
Even before the overdraft racket had a light shined on it, banks and networks were pressuring merchants (through 'incentives') to shift transactions back to credit. They were raising debit processing and card fees in direct response to the revenue effects of consumers switching to debit. Lowering potential debit revenue by cleaning up overdraft nonsense just put the final nail in establishment incentives to support debit.
My impression from the banks I've worked with is that a wire is a one transaction per file affair, and that a single wire is as much effort as a 10k item ACH file.
My point is just that if there were profit in processing transactions as wire transfers, they'd have been streamlined/automated/replaced with a more-modern equivalent long ago.
There is. The banks mark up their costs. Wires were $7 at my bank 12 years ago, they're up to $25 now. Sounds like profit to me.
There are a ton of alternatives out there for transferring money. Wires are just one Fed product that happen to have a specific speed/security/limit/regulatory system.
Off the top of my head, if you want to move money, there's at least: ach, wire, image clearing, paper check clearing, image exchange, the atm network(s), the debit card network(s), the credit card network(s). That's leaving out paypal, western union, dwolla, and whoever else has started a money transfer business.
Almost every single one of those has different guarantees about timing, reversability, regulations, and transaction limits.
Wires happen to be a ca. 2 hour difficult to reverse (but possible) from /to banks connected to the FED. They're more expensive, probably on the order of $1 + staff overhead.
ACH is a roughly overnight to/from any bank connected to the fed, pretty easily reversible for 3-90 days. They're ~$.01/transaction at scale, and you can batch huge numbers of them into one file, so they scale. That's where most bill pay and direct deposits go, as well as a ton of other stuff.
> The recipient just has to enter their bank's ABA number and account number.
Sounds like ACH. I don't think it's possible for individuals to use on their own, though.
I can just log into my bank in Germany and transfer money to any account in Europe (even in the UK) with zero fees. As mentioned, it's a very common method of payment because it costs nothing to set up or use. Only downside is that transfers usually take a couple days to clear.
Exactly; it is by far the most common p2p money transfer mechanism here in Italy too. I would never have thought that something like this could cost 25$ per operation in the US..
In Germany you could easily end up paying that much for a single cash withdraw from your own German bank account if you end up using the "wrong" ATM... completely ridiculous and nothing but frakking with customers over bank account turf.
Wait, is this the work-around? People use their credit cards to withdraw money everywhere in Germany? I should check my mastercard policies but I believe most CCs charge you...
I don't know about you, but I'm not generally keen on giving my account number to someone so they can wire me a few bucks. That's rather error prone and a little shaky on the security side. It can also be rather expensive, depending where you're sending to/from.
The IBAN account numbers we use in Europe have a 2 digit checksum against errors (mod-97 - see http://en.wikipedia.org/wiki/International_Bank_Account_Numb... ). Banks are also not allowed to charge more for inter-EU transfers than for national ones, so in most cases transfers are free (because they are free within the country).
The banks didn't do this willingly, they were forced to by the EU.
I think most of the applications (like the ING example) have the recipient supply that information to the sender's bank, not to the sender himself.
Not totally sure it works that way in Europe, but I think so.
In Europe it works like this: If you want to receive money, you give the sender your bank account number. The sender can then transfer money to you using his bank's website or mobile phone application. There is no risk involved, because knowing somebody's bank account number only enables you to send them money -- but not to withdraw money. Transactions are usually free, but take one to three work days to complete.
That doesn't address the error-prone nature. I don't know off the top of my head my account number or routing info. Looking it up is a pain and typing it in can be done incorrectly. This isn't something I want to do regularly.
I'm also not clear how the recipient supplies their info to the sender's bank. If I don't have an ING account, how can they verify that I'm me, and not someone else who's pretending to be me in order to intercept the transfer? As I recall, when I've done wire transfers, I've always been given the account info of the recipient for me to provide to my bank (but I haven't done this very frequently).
Edit: I just saw your other reply where you describe the ING app. I guess that works, but it's rather unfriendly. I'm always a little wary of high-security stuff (such as money transfers) that depend on email, too, but that's also an issue for Dwolla and probably a lot of the other payment startups.
> I don't know off the top of my head my account number or routing info. Looking it up is a pain and typing it in can be done incorrectly. This isn't something I want to do regularly.
But how is that any different from a credit card number? I have all my bank info in my pocket, right on my Maestro card. No expiration date, no CVV code. Just an account number and a publicly-known bank number. If I'm authorizing a direct debit, that's all I have to enter.
As davidhansen said, a typo on a credit card number is likely to be an invalid number. In addition to that, I almost never give anyone my credit card number directly. I swipe the card so there's basically no chance that I'll get the number wrong. And the security is addressed by the credit card company, who guarantees that fraudulent or incorrect charges will be credited or reversed. There's no such guarantee with a direct debit, and that makes it a much larger security risk. (This is one of the reasons that Visa charges 2%, of course. You're paying for insurance.)
My guess would be the size of the collision space. Bank account numbers tend to be shorter, and depending on date of opening and institution, may have been sequentially assigned. It would be much more difficult to accidentally enter someone else's credit card number than someone else's bank account number. In addition, if you accidentally sent $5k to 61-019341 instead of 61-018341, chances are the recipient would be less than willing to be a good citizen and admit it was an erroneous deposit.
UK bank account numbers is a 6 digit sort code + 8 digits account number. The account number is unique for the bank, and assigned however the bank wants. It might very well have been sequentially assigned for some institutions.
The 6 digit sort code is unique for the bank branch across all UK banks, generally the branch on record for the account (most UK banks use the sort-code for the branch the account was opened at). Unless you happen to mistakenly enter an account number and sort-code that matches, and you manage to mistakenly enter the name of the account holder for that bank account, they'll usually catch it.
The situation is similar across Europe, so if this is a problem in the US, it's a problem of the banks own making, and one easily solved the same way it was in the UK: By adding a sort-code, and matching on the name as well.
In practice, you can't type an IBAN incorrectly. The checksum is good enough that I force myself to never check an IBAN I've typed - because I trust the maths.
This was true sometime ago. Now, the recipient only needs to supply the sender with the last 4 digits. They then verify their own information to complete the transaction.
I have a hunch that the penalties for check fraud are disproportionately severe compared with crimes of a similar social impact. I wonder if the same would be true with ACH transfers. My point is that governments take bank crimes seriously as prosecute them aggressively.
I'm sure that the penalties for check fraud are quite high. Nonetheless, I don't want to be a victim of check fraud. It's a massive amount of hassle when you have to fight financial fraud, and sending the criminal to jail doesn't change that.
