Why Do Banks Take So Long To Process Payments? 

Florence Desiata

Have you ever wondered why an electronic payment for a cup of coffee transmits much faster than money transferred from one bank account to another? There are plenty of moving pieces behind the curtains, which is why banks sometimes take so long to process payments. 

Why Do Banks Take Days to Process Payments?

It can take banks 1 to 5 business days to complete a fund transfer because they want to ensure your money isn’t involved in fraud.

Here’s a general timeline of the process to help you understand why it takes more than a day to make payments:

Day 1

  1. The originating bank transmits transactions per batch to the Automated Clearinghouse (ACH)
  1. The ACH clears and settles the transactions. They usually finish this in just a few hours.
  2. The ACH network transmits to the receiving bank when they have successfully sorted the transactions.

Day 2

  1. The ACH’s processes can reach the second day if they send the batches towards the end of the first day. 
  1. The recipient’s bank will receive the money. 

As you can see, the earlier you transact with your bank, the higher chance the funds will be in the recipient’s account on the first day.

Days 3-5 

More common for international transfers, transactions can reach up to 5 days because of the following factors:

  • Bank branches using the BIC/SWIFT Codes need to be correct 
  • Banks’ cutoff times
  • Fraud prevention – the SWIFT network requires the transaction to go through three intermediaries to accomplish this
  • Different currencies
  • Different timezones, 
  • Any incorrect bank account details

Sometimes, the bank payment process can take longer than 5 days. It usually has something to do with your risk profile, especially if you’re: 

  • A new customer
  • Transmitting a large amount of money
  • With a history of repeat overdraws

It will take banks additional days to look into your account to ensure the transactions are in order, resulting in delays. 

The Three-Day Good Funds Model

Banking institutions use the “three-day good funds model” policy that adds to the delay. Here, transfers can take between 2 and 4 business days because they want to ensure it’s not illegal. They’re monitoring if the money is still there before transferring it to the receiver.

Frequently Asked Questions

What is the role of the Automated Clearinghouse in processing payments? 

The ACH is a whole network that facilitates the electronic movement of money. They oversee fund transfers between banks, person-to-person payments, bill payments, and direct deposits from employers and government benefit programs. 

Why Does The ACH Only Transfer In Batches?

Processing the transfers by batch makes it easier for ACH to rule out fraud. And these are processed by a network operator only 7 times daily and during business days. 

Is There A Faster Way to Transfer Funds?

You can pay to speed up the transfer. Banking apps such as Digit will allow you to move money more quickly for only 99 cents, and Paypal’s Venmo will charge you 1.5% of the total amount you want to transfer. Venmo bypasses the ACH and processes through other networks, hence the faster clearance.

The Bottom Line

It’s best to transfer your funds early so the process can complete on the same day. International transfers, of course, will always take a longer time. And it won’t hurt to check out your bank’s policies to see if any unexpected delays can happen.

At the end of the day, having all accounts under one roof might be the best way to get your money promptly.

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