Why do bank transfers take so long?

Why are bank transfers so slow? Your bank account is empty, and you're frustrated on payday waiting for your money to arrive. 

The urgent bill that you needed to pay by the due date is still being processed. 

Or that international business transfer seems to be taking days to reach its destination.

These are common frustrations that erode cash flow, rack up late fees, or miss out on great deals.

What makes it all the more confusing is that we can stream 4K HD video from 10,000 miles away. But money still moves like it's the 1970s. 

It's a strange disconnect between the modern tech globalized capabilities we have and the banking speed that creates confusion.

So if you're suffering with a bank transfer delay… where the money's been transferred but not received, then below you'll learn about:

• frailties of the banking infrastructure

• regulations slowing everything down

• how to fix these delays

• digital solutions delivering cheap, near instant bank transfers

The banking system infrastructure

Here's the headline news: The banking system is antiquated. Most banks are still using legacy systems with technology layered over the top.

These technologies' shortcomings stem from banks still using what's known as COBOL, which is essentially technology from the 1970s and 1980s. It’s 50 years out of date. In fact, up to 90% of major global banks still use these mainframe systems.

And the trouble is, these systems and programs weren't really designed for 24/7 real time payment processing. They simply can't handle the requirements of modern technology, the expectations of modern technology.

Instead, they rely on processes like overnight batch processing, which means they collect lots of payments into one batch and run them all at the same time. So when you make a payment, you have to wait for it to be included in a batch and processed. Your payment sits in a waiting room rather than being processed immediately.

Of course, banks have merged and added more modern technology to help alleviate these pains. But rather than rebuilding these banking rails or fully integrating, modern technology sits on top of these decades old core systems. Another technological mismatch creates other bottlenecks, which slow your transfers down. Though it might feel like a slick modern interface to you as a consumer, that's not the case behind the scenes.

To give you an example, ACH (Automated Clearinghouse) generally processes transactions in batches three times per business day, which is why they're not instant. And banks have cut off times for processing these transactions. So if you miss the cut off time for the final batch of the day, you'll have to wait till the next business day for your payment to be completed.

So the time you transfer can make a huge difference in the processing time, especially if you're running up against weekends or bank holidays. Miss the last batch on a Friday afternoon, and you might not have your payment processed until Tuesday.

Intermediaries in the transfer chain

Intermediary banks and processors further compound all of this antiquated technology and processing in a financial transfer chain.

For international bank transfers, money can pass through two, three, or more intermediary banks. Each bank in this chain adds time and cost to the transfer. You can think of it like an international long haul flight. The plane rarely goes from one destination to another. Instead, it has to make layovers on the way.

Each time you hit a layover, it costs you time and money and adds security steps. That's what happens to your money traveling internationally.

Many countries don't have clearing houses for major currencies. Instead, funds need to be routed through US dollars or euros before reaching their destination. 

This is where stablecoins provide a solution. They remove the need for intermediaries and clearing houses, essentially getting rid of airports and layovers. Instead, allowing peer to peer payments where funds move directly from one crypto wallet to another. Like teleporting around the world. And the beauty of that is it can be near instant and costs just a few cents to complete payment.

This helps alleviate the problem of time zone challenges as well. Using traditional banking methods, international transfers need to cross time zones. Once again, this runs up against processing schedules and banking hours. 

For example, if you're transferring money from Asia to the US, but you make the payment outside of US business hours, you might have to wait an extra 24 hours before your payment is processed.

Clearing houses and payment networks

Traditionally, there are several different clearing houses and payment networks used for bank transfers:

1. ACH

This is the Automated Clearing House, which processes over 29 billion transactions every year, which total more than $70 trillion. This ACH network still operates on a batch processing system and is responsible for the vast majority of direct deposits in the United States. The sheer volume that it now needs to process in each batch window creates inevitable delays.

2. SWIFT

The SWIFT network has been developed as a messaging system between banks. It allows banks to communicate payment information internationally. Unfortunately, while it helps with communication, it doesn't actually move money. It simply sends instructions on where to move money.

Think of it like sending an email to someone, instructing them about a payment, but not actually sending the payment.

3. Other systems

While the US might rely on ACH, different countries use different clearing houses domestically. For example, the UK alone has two different major systems: BACS (Bankers Automated Clearing System) and CHAPS (Clearing House Automated Payment System). They both operate in the UK as bank to bank transfers, but have different speeds, costs and use cases. 

And if a single country has multiple clearing systems, then imagine what it's like trying to coordinate and agree on a settlement process across every country in the world.

With traditional banking payments, there isn't a clear solution. There are incompatibilities between systems which require translation steps and all these intermediary banks.

Regulatory and security considerations

Modern banking processes are also tied down by growing regulation and scrutiny. Banks need to adhere to their jurisdictions' Anti Money Laundering Requirements (AML), and with the growth of digital platforms and cryptocurrency, these are becoming ever more stringent.

It means banks need to screen for suspicious transactions, particularly with strange patterns. And the largest transfers are automatically triggered for review. So if you're making lots of small payments you don't usually make, or you send an unusually large payment, it can be triggered for a security check.

In short, the payment is frozen until the source and destination of the funds can be cleared. 

Then there's Know Your Customer (KYC) verification. Before you can have a verified bank account and start making transactions, even on digital payment platforms, financial institutions need to verify your identity. When it comes to international transfers, it can increase scrutiny and require documentation for verification.

For international transfers, every payment is screened against sanction lists like OFAC. Any suspicious countries or restricted names can trigger a manual review. When a manual review is involved, it causes severe delays.

Currency exchange and international considerations

While domestic payments can often feel fast and cheap, that's rarely the case for international payments, which run on traditional banking rails.

If you're sending money abroad, then there are currency exchange rates to navigate. This adds complexity and time, as banks usually run their FX trades at specific times of the day. Once again, leaving your payment in a holding pattern until this is conducted.

Technological innovations and banking alternatives

So the traditional banking system isn't fit for purpose in a digital world. But both financial institutions and entrepreneurs have been working to solve these payment issues over the last decades.

Faster payment initiatives

In July 2023, something called the FedNow service was launched. It is designed to enable instant payments in the US, but it is still limited to specific participating financial organizations.

In the US, it is a big step forward to delivering near instant domestic bank transfers, although not everyone has access to these services.

The Real Time Payments Network (RTP) also enables financial institutions to make payments in real time. It's a step forward as it allows 24/7 payments even outside of banking hours, but it still isn't universally adopted.

It shows that instant banking is possible, but requires everyone, all institutions across the world, to be working on the same system. Easier said than done.

Digital banking and fintech solutions

Neobanks or digital first banks run closer to what we would expect for a modern payments process. Generally, these banks run on a smartphone app or web app and allow users to make instant internal transfers between accounts and speed up the process of external transfers.

For example, platforms like Revolut and alternatives like Wise allow you to send money almost instantly, both domestically and internationally. You can transfer funds between different currencies and even use payment cards just like a credit card or an ATM.

P2P payment apps have also been developed to try and circumvent traditional banking rails. Venmo, CashApp, and PayPal all allow instant money transfers within their ecosystem. So you can send money from one Venmo user straight to another Venmo user in real time.

However, to cash out funds from those apps, you still might experience delays when moving money into a traditional bank account.

While all of these solutions do fix the speed issues of traditional banking, they do unearth some other problems. Fees can mount up either for holding an account, withdrawing, or making currency transfers. 

Plus, for businesses, having to manage multiple multi currency accounts can add its own set of headaches and cause financial issues during FX rate fluctuations and banking and currency regulations.

Acctual, on the other hand, provides complete flexibility, giving you the benefits of a modern international payment solution without the headache of managing multiple accounts and currencies. It even incorporates cryptocurrencies like USDC and USDT.

Blockchain and crypto solutions

Blockchain offers a new way to transact with anyone, anywhere in the world. There are no middlemen or intermediaries slowing down payments and adding fees. Instead, you can send money directly from one person to another.

It's peer to peer payments with near instant settlement. Removing the complexities of coordinating banking systems, SWIFT networks and credit cards.

The development of stablecoins removes the worry of currency volatility too. For example, the two most popular, USDC and USDT, are pegged to the US dollar. That means one coin is always worth one dollar.

It's a way to make payments internationally in a fast, cheap and stable process. 

For example, a person who needs to make a payment to the United States but doesn't have any access to the US dollar could pay in USDT, and the payee receives it straight into their crypto wallet.

Acctual helps you take this one step further, merging the blockchain and traditional banking world. So a business in Nigeria could pay in Naira, and the supplier in China receives Yen. Except stablecoins are used to bridge the gap, not SWIFT or other clearing houses.

It helps coordinate payments across the world in a faster and cheaper way. 

What to do when experiencing delays

So if you're reading this article because you're wondering why your bank transfer is taking so long to arrive, then understanding the common causes for your delays and what to do when this happens can help remove frustrations and fix the problem.

Common causes for unusual delays

1. Input errors

If you've added the wrong account details, even a slight spelling error in the account holder's name, it can cause significant delays. One wrong digit can send a transfer into checks or exception processing. So, before you make payments, always double check the details before confirming.

2. Compliance hold

If everything was okay with the transfer details, then slow payments are likely in a compliance hold.

Larger payments will be automatically triggered. This varies from bank to bank, but can often be as low as $2,000 or $3,000 to flag a check if it's an unusual payment.

Unusual transfer patterns will quickly flag in AML systems. For example, making lots of smaller transactions in a short period of time.

First time international transfers also face additional scrutiny. If you don't regularly make international payments, or it's to an unusual country, then anti fraud teams might flag the payment.

How to track your transfer

Once payments have been sent, it can often be challenging to find out where your money is. It's another problem with the opaque nature of the traditional banking system. Especially when you compare it to blockchain, where all payments are transparent.

If you're looking to track a payment, it can be similar to tracking a parcel in the post. You'll need data like SWIFT transfer numbers that can help locate payments across banks. Some banks will allow you to track transfers through their online banking, but often, especially for international transfers, you'll need to call the relevant department of your bank.

When to be concerned

If your bank transfer hasn't arrived on the same day you sent it, then there's no need to be alarmed, as often they can take overnight or a few days to clear.

To give you an idea:

• Domestic ACH can take 1 to 3 days

• International wire transfers can take 3 to 5 days

• Cross currency transfers can take 5 to 7 days

So generally speaking, if funds haven't arrived after around five days, then it's worth contacting your bank to see if there's a problem with the payment.

Get fast, reliable bank transfers with Acctual

If you're fed up with bank delays, then you don't have to suffer anymore. With Acctual, you can send and receive money the same day at lower cost.

That means you can send money however you like, and the other person can receive it in their preferred currency format. 

Or if you're a business, you can make payments and send invoices with complete flexibility. So your clients can pay how they lik,e and you can get paid how you prefer.

Acctual's merging of fiat and crypto payment infrastructure bypasses the traditional banking bottlenecks. It avoids the costly ways for sending, receiving and converting money into your preferred formats.

So what does this all mean? Well, you could make a payment in US dollars to someone anywhere in the world who could receive it in USDC stablecoin straight into their crypto wallet. Or vice versa. Or you could pay a bill directly from your crypto wallet and have your supplier receive it in their local currency.

It's fiat to crypto, crypto to crypto and everything in between. Acctual's system offers complete security and compliance while maintaining speed and efficiency. That means all your payments comply with KYC and AML regulations and are screened against OFAC lists and similar lists.

If you're fed up with asking, "Why does my bank take so long to process transactions?" then get started with Acctual today, creating a free account in just two minutes.