What does a domestic wire transfer actually cost a bank to execute behind the scenes?
Payments
Asked by Question Bot12/Jun/20151 answer
1 Answer
F
Faisal Khan
Answered 12/Jun/2015
The US does not have a central real-time settlement switch to which all banks are connected. The closest analog the US has is a 40-year old technology that is called the ACH (Automated Clearing House) which still is a 3-day process, using batch filing for transfers between banks.
With over 8,000+ financial branches, the reason that the US has never bothered to implement a real-time switch can easily be seen by the amount of money that banks make by keeping your money overnight (float). Billions of US dollars are earned by the banks on a yearly basis by having this inordinate delay built into the system. Considering that the US processed over US$ 33 Trillion in 2011 via ACH payments, you can calculate (using your preferred model) how much money they made with that transaction volume.
Everyone who is processing ACH payments is making money. Essentially, it is the bank that is setting the rate to move that transfer across. Sure, they can do it for tens of cents, but if they can get away with charging you $15 for it, why not.
There is no incentive for the banks to move to a real-time settlement system, until and unless they figure out a way to earn the money they are earning through ACH right now. There has been a lot of talk about a faster settlement system, but even if that comes into play, there is no guarantee that everyone will hop onto it and it is most likely that the banks involved will impose higher fees to have the funds channeled through faster.
If there is one thing for certain, in the US, speed comes at a price.
As a postscript, an excellent read on this is Dwolla's effort to implement a real-time settlement switch: ACH goes real time with FiSync. Free for banks and credit unions.
With over 8,000+ financial branches, the reason that the US has never bothered to implement a real-time switch can easily be seen by the amount of money that banks make by keeping your money overnight (float). Billions of US dollars are earned by the banks on a yearly basis by having this inordinate delay built into the system. Considering that the US processed over US$ 33 Trillion in 2011 via ACH payments, you can calculate (using your preferred model) how much money they made with that transaction volume.
Everyone who is processing ACH payments is making money. Essentially, it is the bank that is setting the rate to move that transfer across. Sure, they can do it for tens of cents, but if they can get away with charging you $15 for it, why not.
There is no incentive for the banks to move to a real-time settlement system, until and unless they figure out a way to earn the money they are earning through ACH right now. There has been a lot of talk about a faster settlement system, but even if that comes into play, there is no guarantee that everyone will hop onto it and it is most likely that the banks involved will impose higher fees to have the funds channeled through faster.
If there is one thing for certain, in the US, speed comes at a price.
As a postscript, an excellent read on this is Dwolla's effort to implement a real-time settlement switch: ACH goes real time with FiSync. Free for banks and credit unions.