Why does electronic banking take so long?

[mirhagk]

I understand why funds would be held for 2 days or something if there was a physical deposit of money, but what do electronic payments and/or transactions not happen instaneously?

Specifically regarding credit cards, the actual actions don't get applied till up to 2 business days after they actually happen, even payments done electronic from my bank, to my bank's credit card. I just don't understand why it takes 2 days for it to deduct a number from 2 balances.

[ProgrammingFun]

mirhagk @ Fri Sep 02, 2011 2:01 pm wrote:

I understand why funds would be held for 2 days or something if there was a physical deposit of money, but what do electronic payments and/or transactions not happen instaneously?

Specifically regarding credit cards, the actual actions don't get applied till up to 2 business days after they actually happen, even payments done electronic from my bank, to my bank's credit card. I just don't understand why it takes 2 days for it to deduct a number from 2 balances.

I would guess that the credit card and bank are two different departments and take time to communicate.
Or, it could be to prevent people from over-spending on their credit cards and start immediately going past their limits...

[mirhagk]

The thing is that the credit limit is updated immediately, just not the balance or transaction history. So you always can know approximately how much you owe, but not exact, and not where it was spent until 2 days later.

[ProgrammingFun]

Well, from Wikipeida:

Wikipedia wrote:

When a merchant swipes a customer's credit card, the credit card terminal connects to the merchant's acquirer, or credit card processor, which verifies that the customer's account is valid and that sufficient funds are available to cover the transaction's cost. At this step, the funds are "held" and deducted from the customer's credit limit (or bank balance, in the case of a debit card) but are not yet transferred to the merchant. At the end of the day, the merchant instructs the credit card machine to submit the finalized transactions to the acquirer in a "batch transfer," which begins the settlement process, where the funds are transferred from the customer's accounts to the merchant's accounts. Contrary to popular belief, this process is not instantaneous: the transaction may not appear on the customer's statement or online account activity for one to two days, and it can take up to three days for funds to be deposited in the merchant's account.
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When viewing an online banking website, authorization holds often appear in the "pending transactions" section of the balance sheet. As stated above, authorization holds only last for a fixed maximum period of time. So, if an individual made the $30 purchase listed above, and their bank only kept that authorization hold in place for 1 business day, then the individual would see the funds as a pending transaction for that first day. If the merchant failed to present the item for payment within that first day, the authorization hold would "fall off" and the funds would appear to be available again. If the merchant then presented the item for payment 2 days later, the $30 transaction would "reappear" and actually be debited from the account at that time. This causes some issues with overdraft fees, as customers who rely solely on the online (or ATM) balance may not be taking into account transactions for which the authorization hold has fallen off. This creates a false impression of the balance, and can cause the customer to spend more than they actually have in the account.