I remain frustrated that world financial systems are unable to handle instant money transfers between institutions. There seems to me to be no good reason that I shouldn't be able to transfer money between my accounts without waiting until midnight for the funds to clear. Worse, the routine seems not to run on weekends. Why is this? Is power unavailable on Saturday night?
Apart from the reasons usually given (fraud protection etc.) the main reason quite simply is that those systems are arcane and Byzantine.
We're talking about AS/400 mainframes here with software written in COBOL and RPG (which actually was created for use with punch cards but still is actively used today). The preferred mode of inter-systems communication on these platforms is exchanging fixed-width files via FTP or socket services.
Not only are these systems difficult to maintain or update, connecting modern systems isn't exactly easy either.
That said, there's a whole lot of money to be made in this area in the next 10 years or so because everyone who still knows COBOL, RPG and AS/400 stuff in general is likely 50 years or older, which means there won't hardly be anyone to maintain those monstrosities any more 15 years from now.
Many banks are currently migrating these systems to modern languages and frameworks, which for banks and finance in general mostly means Java. Unfortunately, that doesn't necessarily mean things will get better. There are many stakeholders in this game and their interests don't always align with the customers'.
That's certainly true as well. Not only is replacing those legacy systems expensive but expediting the transfer process would actually be against the banks' interest (because they're still able to use that money while it's in digital limbo).
If banks were only allowed to subtract the amount from the sending account as soon as they got confirmation from the receiving party that the money arrived and was added to the receiving account this would incentivize them to make this process as fast as technically possible.
The Byzantine systems aren't there because they make money. They are there because banks have built up bureaucratic cruft every bit as bad as the worst excesses of poorly run Soviet bureaucracies.
In other industries competition clears some of the cobwebs, but the banking industry is oligopolistic.
I always thought the obvious reason for this is that it allows the banks to hang on to your money a little bit longer. At least that's how it works where I live. The money disappears from your account immediately, so essentially you give them a ~24 hour free loan. The banks win, so they have no incentive the change it.
There's no guarantee that individual banks will have enough deposits to cover their liabilities, so they first have to wait until the end of the day in order to clear all transactions made and fix any possible deposit shortfalls by operating on the overnight market getting short-term loans, either from the FED or from other banks.
I'm not saying this is the reason why you can't instantly transfer money around, as there could possibly be a better implementation of such a system that allows consumers to do that. I'm just saying what I know.
Since 2008 the UK, the Faster Payments Service[1] on infrastructure run by Vocalink[2] enable bank-to-bank payments that usually clear in a couple of seconds. This should work 24/7, depending on the sending and receiving bank. Many banks will "soft post" the payment during the day in a mirror ledger, and then run overnight batch processes to "hard post".
Of course, their batches only run on business days. Because there's no-one around at the weekend to crank the handles on the machines...?
I'd expect to see Faster Payments rolled out in the US in the next 5-7 years.
When I explain EFT and EFTPOS to Americans, they're often surprised that we Australians had it for decades.
The USA flew men to the moon, built the bomb and invented the internet. Their principal form of funds transfer is still with pieces of paper. Pieces of actual paper.
The latency still isn't good enough with FPS. I still have to wait until COB the next working day to transfer money from my building society to my bank account :(
