Slow ACH Transactions
Can anyone explain to me why, in this age of advanced technology, ACH (electronic fund transfer) transactions still take 3-7 business days? I would expect that much of the processing required to make it happen would take a few milliseconds with the computer systems we have now. Does each transaction require manual verification or something?
This has always bothered me too. I could see a 1 day delay, as massive systems like that don't necessarily keep everything up to date real-time, they update nightly, or a few times throughout the day. But it's definitely not manual verification. ACH actually stands for automated clearing house. It was developed in California in the 70's to automate the process. Back then everything used to go through the federal reserve. Most of it still does, but there are some private ACHs too.
Google didn't turn up much useful in the first 10 links or so, except confirmation of my conspiracy theory that the banks are greedy, but there was no real evidence, just hearsay. There isn't a lot of concrete info on the process, the following is just a mash up of my knowledge/assumptions about the banking industry and a bunch of "wiki answers" type crap. The term for the funds during this period where neither sender or receiver having the money is "float" or "floating". That is, between the money leaving your account and arriving at the destination, it is "floating" around somewhere in the bank, and the bank is allowed to use that floating money how they want (within legal limits). This probably boils down to some kind of short term investments and the like, so the sending and receiving banks make money off of you for a day or two.
Now, that being said, due to the non-real-time nature of this, there is a period where you still have the money even if it looks like you don't. Basically as soon as you make the ACH transfer for, say $100, the bank says "okay, you have enough money to cover this, so I will flag $100 of your money as 'pending ACH' and lower your available balance by $100 so you can't spend it". For that period, I believe you still get interest on it. But that's usually only until the end of that business day. Then it coordinates through the ACH with the other bank, the transfer is agreed upon, and the money leaves your account. No more interest for you, but your bank holds it for a day or two, earning money on it. Then it transfers to the other bank via the ACH, and that bank holds it for a day or two earning money. Then the recipient gets it and can finally earn interest on it.
Like I said, no good evidence for any of that, but it certainly seems like a reasonable explanation.
In the US part of the problem is the banking regulations. For instance transactions between banks only happen during "business hours". So if a bank transfers money overnight this transaction doesn't happen until start of business the next day. And since many banks only transfer these funds at the beginning and end of the business day you will usually get a two or three day lag minimum. Also since banks are not officially open on weekends no transfers happen between about 3 pm Friday and 9 am Monday so you will probably add a couple of days for the weekend.
Large grocery store chains make their money on a similar kind of "float". They get the product from the supplier before they pay for it. When they sell some of it, they invest the money until they have to pay the bill. They make their profit off of these investments. Companys like Walmart probably do the same.
Originally Posted by anduril462