Is Your Bank Behind the Times?


Regardless of which bank you have, they are all “anno dazumal” as the Germans and Swedes would call them, meaning “of a prior era.”

Why would I say this? Look at online banking – isn’t that as nice as paying bills gets? Paying the bills at home from your computer, without needing to mail any checks… isn’t that modern enough? Not to mention mobile apps that let you check balances and make payments from your cell phone. Those are perhaps a little too convenient even (let’s not lose that cell phone!).

No, what really is problematic is how slow banks are. Back when thick shoulder pads and big hair were fashionable and IBM main frames were everywhere, yes, banks probably needed a few extra days of sitting on money at every step of the process. But these days, the entire banking network is extremely tightly integrated. Not only do the banks need the ability to audit their client accounts, but to top it off, there is a long list of state and federal agencies that are quite interested in monitoring the funds being moved around. Some, presumably the FBI, NSA, and others, even engage in real-time monitoring. Then there’s the IRS of course.

With all this integrated goodness, why does it take five (!) business days to transfer funds electronically from an account in one federally regulated financial institution to an account in another? Perhaps the Feds’ systems are jammed full of jobsworth electrons— “jobsworth” being a delicious British-ism referring to those that show up for a job but don’t really do anything productive – because doing that would be more than the job’s worth.

Since this delay happens on an annoyingly regular basis (I bank with a major bank, a credit union, and two other large securities institutions), this time I thought I would dig a little deeper.  When speaking with the banks, I am given the explanation that delays are needed so they can make sure the money is really in the originating account (which doesn’t fly since everything is integrated, and if credit card firms can place instantaneous holds on your money, why can’t the banks?). And I am told that the other bank hasn’t “requested” the money yet. Really, why isn’t this closed when I click the “transfer” button on their site? Since these transfers are at least initiated electronically, the mind shudders at the thought of people manually matching and approving transfers. No wonder banks have a hard time being profitable if they carry all that overhead. I sincerely hope they don’t – but who knows?

And there’s no real argument to be made for banks profiting from the five-day delay by getting a transfer float carry since that would be a zero-sum game across the industry. If one bank can’t sit on the money longer, the other banks can’t either, so the first bank will receive funds faster.

Capital tied up by transfer delays is capital that isn’t doing anything productive – and all these delays just increase the general expense of doing business.

So, to you banks out there that think a glitzy iOS app makes you ‘modern’ – guess what, it doesn’t!

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