Why do many automated bank transfers only process overnight?

Much of the banking world is batch-process, which means, transactions and payments are bulked up and then batch processed at a certain time. This is due to the old way of doing things, and it takes time to upgrade and get everyone (read: banks) onboard with the program.

An analogy would be if you’re running a store. When you open for business, you presumably have cash with you, for customers who come in. So the first customer comes in, buys let us say €100 worth of goods. After the customer leaves, you run to the bank and deposit €100. Another customer comes in and buys €250 worth of goods and after they leave, you again run to the bank and deposit the €250. Another customer walks in and wants a refund on their previous purchase for €75, so you quickly make a dash to the bank and withdraw €75 to give to the customer.

As you can clearly see, this is highly inefficient. It would be easier if you had say €100 to start with at the start of the day, and then at the end of the day you would have the following:

• Start of the Day Cash: €100
• Sales: € 350
• Refunds: €75
• Net Balance: €375
• Keep €100 for next day
• Deposit in Bank: €275

The banking world works no differently. Except, rather than a single business, they are dealing with 100s if not 1,000s of business partners that they need to settle in. It is easier to bunch things up and agree that at night (for example) when people are sleeping and businesses are closed, we will quietly exchange and settle amongst each other.

Changing behavior takes times and a lot of effort, so the real-time settlement and instant transfers, will eventually come, but it will take time due to the sheer number of players involved as well as the regulators and technology at play here.