Why do interbank transfers take longer than transfers within the same bank?

Let me answer this question with a physical analogy.

Movement of money within the bank is the equivalent of taking money out of your physical wallet and handing, say a $20 bill to your brother, who lives with you in the same house to put it in his wallet.

The movement is local. It’s within the house. You did not have to get dressed, put your shoes on, go out, and drive somewhere for this to happen. The money movement was nearly instant.

Moving money to another bank is the equivalent of getting dressed, driving out, and then waiting, because it turns out the person to whom you need to give the money to, they are sleeping. So they do not wake up for another 7 hours. Or you may have to drive a long way, oh! and you refuse to drive on the weekend (as a restriction) and not outside working hours. So it will take some time to get there.

In such a transaction, you have to be cognizant of your own schedule/calendar, locale, and how near/far the other bank is, and what their timings are, and what their schedule is.

And in this whole process requires a ‘currency exchange’ well, now you have to keep the currency change bureau in mind too. How near/far they are, their timings and schedule, etc.

Here is another twist. Imagine the money being moved is like a hot-water bottle, and you have to deliver this bottle across the state in freezing conditions. The warmth of the bottle is lovely. Keeps the inside of the car, nice and warm. I bet you would not be in much of a rush to deliver this hot-water bottle. You enjoy its warmth and because of that, you deliberately deliver the money late.

This is how banks make money, using your money. The money they delay in paying out, is loaned out (without any cost) for short term periods 1 day, 3 days, 7 days, etc. and hence the added delay before the money is credited to your account, is also deliberate because it is free warmth for the bank.

I hope such an analogy makes you understand the complexities of money transfers.