With the advent of the information superhighway data can be transmitted from one side of the world to the other in milliseconds.  Data, including emails, video calls and great long, complicated documents are all instantly transferred in real time.  However, despite this revolution, real time financial transactions remain elusive.  So why does the phrase ‘transaction pending’ linger on our account statements for so long?


Banking Technology – So Last Century

In part, a banking hiccup in the UK earlier this year which left many thousands of customers unpaid was a good example of the problem.  The clearing process, and computer systems that the major banks have in place, have been around since last century and it’s beginning to show.  With so much being automated about our lives, and much of it being developed in recent years, the banks older systems are not always compatible.  However, the systems are big and help to keep the cost of banking down and in this respect, at least, do benefit customers.  The cost of upgrading systems is likely to be large and some of those costs will no doubt find their way into customers own bank accounts, which suggest there could be one big transaction pending for us all.


The Status Quo

The current system of taking card payments is based on a ‘batch payment’ system.  Basically when a merchant swipes our card, or takes an online payment, the information is sent to our bank, which will automatically authorise the payment.  This authorisation is in fact, more of acknowledgement that the bank has received the instruction and will make the payment.  However, the payment is not actually transferred at that point from our account to the merchants.

At the end of the day, usually overnight, using automated systems and accounting software, the day’s payments are finally transferred from bank to bank.  This means that all requests for payment received by a given bank are dispatched in one bundle to relevant accounts.  Some may be travelling between internal accounts and others to different banks.  This system of bulk payments allows banks a simple, one stroke solution to transferring its balances and has, until now, been the fastest and most cost effective way in which to manage the whole process.


Stop-overs on the Way

The process itself can take longer for some transactions than others and this is simply down to the fact that the process of transferring the money from one account to another is not quite as simple as that.  There are almost certainly going to be a few stop-overs along the way from the original account to the final account.  Individual banks, card issuers and processors will take their cut of the payment in the process.  Depending on when these funds hit the relevant accounts there may be a delay in the transaction, leaving it pending in both the sending account and in the receiving one.  Depending on how many charges are applied to the transfer, the full process can take a period of several days, although in most cases this is becoming much quicker.


Real Time Soon, Anyone?

The possibility for real time transfers already exists, but as mentioned above it’s the banking infrastructure, that is not yet ready for the change.  The chances are that real time transactions will become standard although as yet they are rare.  The problems earlier this year when one banking system crashed have highlighted the chinks in the (increasingly rusty) armour of the banks and this is likely to prompt a gradual updating of systems.  New payment techniques, including the growing demand for mobile payment solutions on the part of both consumers and vendors, will also fuel the demands for real time transactions.  The easier it becomes for us to part with (or receive) cash the more likely that real time payments will become the main banking standard mode of operation.



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