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Anatomy of an ACH transaction
- jqpabc123 3y agoACH transactions happen every day Yes and they happen very s-l-o-w-ly. Sometimes they can take up to 3 business days (not counting weekends and holidays). And they only work during "bankers hours" --- between 10am and 3pm each day. In other words, ACH is the horse and buggy way to process financial transactions with lots of manual work required along the way. It shouldn't be this way and most everyone knows it. The new and improved and long overdue way is called FedNow and will operate 24/7/365 and will offer almost immediate results --- so you can do amazing, wonderful, high tech things like electronically pay a friend your part of the dinner check while still sitting at the table. https://www.federalreserve.gov/newsevents/pressreleases/other20230315a.htm https://www.federalreserve.gov/newsevents/pressreleases/othe...
- toomuchtodo 3y ago> The new and improved and long overdue way is called FedNow and will operate 24/7/365 and will offer almost immediate results --- so you can do amazing, wonderful, high tech things like electronically pay a friend your part of the dinner check while still sitting at the table. I thought it was more exciting that checks can be deprecated :) Over 13 million are still used every day!
- lxgr 3y agoAt least they aren't regularly flown across the country anymore, thanks to check truncation, i.e. Check 21: https://www.washingtonpost.com/archive/business/1996/01/17/the-check-is-in-the-airmail/8591c3a3-5c41-4b75-a6bf-93dba499c38a/ https://www.washingtonpost.com/archive/business/1996/01/17/t... They still have to move across the country in one direction, though... I'm still not quite over the fact that I need physical access to my mailbox to receive payments from certain entities.
- toomuchtodo 3y agoAn interesting fact is that the ground stop after 9/11 was what prompted that legislation and why remote deposit from a mobile phone or business scanner is possible. https://www.protocol.com/newsletters/sourcecode/tech-legacy-september-11 https://www.protocol.com/newsletters/sourcecode/tech-legacy-... https://www.frbsf.org/education/publications/doctor-econ/2012/april/check-processing/ https://www.frbsf.org/education/publications/doctor-econ/201... https://www.frbsf.org/education/teacher-resources/open-operating-federal-reserve-response-911/ https://www.frbsf.org/education/teacher-resources/open-opera... https://en.wikipedia.org/wiki/Closings_and_cancellations_following_the_September_11_attacks https://en.wikipedia.org/wiki/Closings_and_cancellations_fol...
- Ichthypresbyter 3y agoWhich apparently was partly responsible for the current bottleneck in airline pilots- a lot of pilots got their first flying jobs working for airlines that flew checks around the country, and were able to earn money doing this while getting the hours needed for their ATP certificate.
- speakspokespok 3y agoI've always heard ACH is slow, and the article mentions that Venmo uses it. So why then can I deposit my Venmo balance into my linked bank account almost instantly for a very small fee?
- darkerside 3y agoBecause Venmo is willing to float you the money despite the risk it might not go through
- pbreit 3y agoFew understand that the movement of money and information about the movement of money happen on different schedules.
- rodgerd 3y agoBanking is an eventually consistent system. People outside banks often find this surprising.
- lxgr 3y agoIn ACH, they generally happen together, and with at least a few hours of delay. That's why instant generally usually doesn't use it.
- pbreit 3y agoThey absolutely do not. That’s the whole point.
- lxgr 3y agoCould you maybe elaborate instead of just disagreeing without references or even explanation? In ACH, as soon as you get the notification about an inbound credit transfer, it's effectively final. Whether it ultimately settles on the same day or 1-2 days later is irrelevant, since what matters is finality. ACH credit transfer clawbacks are very rare compared to ACH debit rejections (due to e.g. insufficient funds or fraud).
- burnte 3y ago> And they only work during "bankers hours" --- between 10am and 3pm each day. This isn't true, it depends on the bank. Some banks only do 9-4 Monday through Friday, Truist is one of those. Some banks process ACH transfers immediately, Wells Fargo is an example.
- pbreit 3y agoIt’s not quite that bad. ACHes are batched several times per day and usually complete same day. It’ll be several years before consumers are splitting checks on fednow, an infinitesimally small use case.
- atkailash 3y agoIt absolutely is that bad. There’s no reason a credit card payment done at 11am on Monday doesn’t take money from my account until Wednesday when I could just go to Target and have money come out instantly buying something stupid I probably don’t need. It may be slightly vendor dependent, my rent is usually maybe a day or so faster depending on when I do it, but again, no reason it shouldn’t be instant. (Yes I couldn’t use my debit card but I’m not paying 5% oR so surcharge for that)
- pbreit 3y agoYour credit balance is reduced immediately when you make a credit card payment. For debit card payments, your available balance is reduced immediately. But no money actually moves until overnight.
- throwaheyy 3y agoIt’s not though. Your bank and/or credit card issuer may be that bad but there are plenty of others that operate faster. I pay my Amex card from Fidelity and the balance updates on the Amex immediately and the money comes out of Fidelity the next day.
- pbreit 3y agoI paid IRS at 10am and the money left my checking account at 11am. It absolutely can be that fast with ACH.
- ThePowerOfFuet 3y ago>It’ll be several years before consumers are splitting checks on fednow, an infinitesimally small use case. We've been doing it for years in Europe thanks to instant SEPA payments ("SCT Inst"), and even those behind-the-times banks in the Eurozone which don't support SCT Inst have been required to support non-instant SEPA Credit Transfers, which settle next business day, since 2015. And, by law, it cannot cost more than sending a payment within your own country (which is generally free).
- lxgr 3y ago> amazing, wonderful, high tech things like electronically pay a friend your part of the dinner check while still sitting at the table. Arguably, this is the real paradigm shift FedNow will bring, if I understand it correctly: Consumer-initiated push payments to an account number. For whatever historical, regulatory, or business reasons, US banks generally don't offer this to individual/consumer accountholders, even though it's clearly possible within the ACH framework, unlike most other countries with a developed "traditional" banking system. (In Europe, for example, this is a very common way to pay bills or rent – checks are practically unheard of.)
- corn13read 3y agoCBDC is the worst possible option. This is the fastest way to dystopia having your money expire, getting fined directly from your account for things like JWalking, Etc.
- jqpabc123 3y agoHave you ever stopped to consider that all the same dystopia could occur without a CBDC?
- u801e 3y ago> Sometimes they can take up to 3 business days I've found this to be the case when transferring funds using the external account transfer feature for a number of banks where I have an account. For example, it does take 3 business days to transfer from an account I have at Bank A to another account I have at Bank B. The banks in question also offer Zelle transfers, but since I used the same email address for both bank's accounts, I'm unable to use it for money transfer from one account I have to another.
- rendaw 3y agoTo use FedNow you still have to go through a bank, right? Who are free to make the interface as poor as they want and tack on fees? And won't this be just as cumbersome, requiring precisely typed recipient bank information?
- jqpabc123 3y agoYes, and you are free to use a better bank that sucks less. There is no escaping the need for identification. The easy approach is probably debit card number which most accounts already have and is check summed to catch most input errors. QR codes could be used to transfer the info easily between friends and eliminate input. If banks won't address this properly, 3rd parties will step in and add this on top of the underlying payment rails with wallet apps. Obviously, the essential thing is to get the rails in place first.
- lxgr 3y agoNotable omission in the list of common use cases: Online bill payments at the payee's portal, e.g. for utilities or rent. I pay my electricity and gas bill like that. > Venmo runs on ACH At least the way I use it, at least the funding side of it (i.e. when I pay somebody) runs on debit card rails. Instant payouts also usually happen that way.
- lukeasrodgers 3y agoI don’t think this is quite right: “debiting someone’s account at a different bank requires validation that they have permission to do so”. I believe the Nacha rules stipulate that the originator must have obtained authorization for the debit (and there are rules governing this in more detail), but the practices around “validating” or “verifying” that it is permitted are done for risk management purposes rather than because the rules mandate them. It is hard to point to proof of this from the horse’s mouth because the operating rules are not freely available.
- ctdean 3y agoThe alternative everyone brings up is FedNow - slightly more expensive, but it works quickly and operates 24/7. The problem is that FedNow is a Real Time Payment system. Everyone in banking knows that Real Time payments equals Real Time Fraud.
- flopsamjetsam 3y agoAre real time payments so bad? Australia has them (New Payments Platform, https://www.rba.gov.au/payments-and-infrastructure/new-payments-platform/ https://www.rba.gov.au/payments-and-infrastructure/new-payme...) and I've not heard anything about mass fraud on it (but possibly regular people wouldn't anyway, since it would likely be kept hush hush).
- ctdean 3y agoThey are good, it's just that 90% of the US banks are not ready for this today.
- mysticalpotato 3y agoReal-time payment systems are common across the world and have been for well over a decade. It poses new challenges but usually you will not consider the fraud checks (AML or just standard TMS) outside the scope of that timeline. For example - instructing a payment to a “real time scheme” or even Real Time Gross Settlement (RTGS) does not mean you get it within that time period but rather it can be submitted and received. For example if you send 100$ to a friend at another bank, you will submit the instruction, the bank will then screen it against an TMS/AML system, then once that passes 1 submit the instruction. If this time is say 10pm, you will be instructed first thing next day when the scheme opens again. In RTGS or similar real time systems, you get settlement within a shorter time period (like say a few mins to hours) meaning the next at someone will have it (pending receiving banks TMS/AML checks) The real issue with this in the US is that they do not have a widespread account name confirmation service that is rolled out for all so it will be hard to do real-time “Confirmation of Payee” which is something that is relatively normal in other countries. This is an oversimplification of most the steps but as a consumer, it will be a big benefit to speeding up the whole system as private networks like Venmo or Cashapp do the exact same thing (well to a lesser degree) but those services are built into the schemes themselves.
- andrewreedus 3y ago[dead]