Monday, September 13, 2010

The stupidity of analog money transfers

(photo by lincolnblues)
The current state of digital currency is somewhat maddening. We have services like online banking, of course, that are getting more powerful all the time. We can pay bills, manage accounts, etc. all from home. Services like PayPal are trying to digitize things like payments to and from individuals, too.

But we're not there yet...and money transfers is a perfect example of why. Transferring money from one bank to another has been possible for decades. It's traditionally taken 3-5 business days for a transfer to process, and until recently that made sense. Banks all operated on different systems, and moving money required several steps.

Today, however, that's not the the way it works. Case in point: ATMs. You can walk up to any ATM and immediately withdraw money, or check account balances in any bank. The computer in the ATM owned by Bank A can immediately connect to the servers of Bank B to find out if there's enough money in the account to allow a withdraw.

Let's look at an example. I have accounts at Bank A and Bank B. I want to transfer $100 from my account at Bank A to my account at Bank B. So I go to the bank's website. Sure enough, transfers are possible right from there with only a few clicks. But it takes 3-5 days to process.

The other option is visiting an ATM. I withdraw $100 from Bank A as cash (or as I like to call it, analog money) and then immediately deposit the money into Bank B. The transfer is completed immediately.

I simply cannot understand why bank transfers still take days to complete. The computer in the ATM, likely no more powerful than an average laptop, is able to instantly connect to the requested bank and transfer money to turn it into cash. So why can't the huge mainframe computers of banks do the same? It should not be faster for me to drive to the bank, withdraw cash, then immediately deposit said cash, than to use the bank's website.

Honestly, I suspect it's that way simply because that's always how it's been done. There are probably very long standing protocols in place for money transfers that aren't easy to modernize. But online banking has been around for years, and ATMs have been around even longer. To me, this seems like something that should have been taken care of by now.

On a related note, can I just say how much I dislike analog money? Paying for things with pieces of paper just seems so archaic.