Why do electronic fund transfers take so long?

September 14, 2005 12:04 PM

I'm a freelance web developer, and I've recently set up a PayPal business-level account to take payment from clients who prefer that method. But I'm growing more and more upset with the fact that it inevitably takes about a week from the day I get the notice of pending payment for the money to actually show up in my PayPal account, and another 4-5 days to get it out and into my bank account. What's the holdup?

There are two reasons why the amount of "processing time" makes no sense to me:

First, the transfer is entirely electronic. That means, basically, that it comes down to making some database queries and shuffling some packets. I make my living building systems that make database queries and shuffle packets, so I know it doesn't take that long.

Second, I've Googled a bit, and while nothing directly relevant came up aside from some vague hand-waving about "processing time", the same search brought up plenty of hits about the Check 21 law, all of which say that while it used to take 3-4 days for a check to clear, now they ought to clear pretty much immediately (according to government info on Check 21, "within hours").

The second point there is a bit more important to me, since a couple of bank personnel I've spoken with have replied that "we have to do the paperwork on the transaction". Yet it seems to me that there's not much difference between cashing a check and moving some money online; if one can be cleared immediately, the other should be too. If one takes "3-4 business days" due to alleged paperwork, the other should too.

What's going on here?

posted by ubernostrum to work & money (8 answers total)

That's how PayPal makes money - they collect interest on the payments during that "processing period".
posted by mrbill at 12:32 PM on September 14, 2005

Paypal must be incredibly hard up, then, because someone paid me with an "eCheck" on September 6, and the payment isn't scheduled to clear to my Paypal account until September 22. From there, four or five more days to my bank. It's goofy, but Paypal isn't a bank (even though they pass the duck test, IMO), so they aren't bound by banking regulations.
posted by MegoSteve at 12:40 PM on September 14, 2005

Paypal make money by charging fees.
posted by fire&wings at 12:45 PM on September 14, 2005

ubernostrum-two pieces of advice. One; if you get a Paypal debit card you can withdraw the money as soon as it clears Paypal, without waiting for them to deposit it in your bank. Two, use a separate bank account especially for your Paypal stuff, and nothing else. Try to keep that account empty. If a payer decides to fuck you over by demanding their money back from Paypal, they will instantly take the money out of your account and it's almost impossible to get it back out. It doesn't matter if all you had in there was your rent money. They'll take it. Don't trust Paypal to have your best interests in mind, or to be easy to deal with. You're guilty even AFTER proven innocent with them. Check out paypalsucks.com for some horror stories.
posted by evariste at 12:46 PM on September 14, 2005

As we all know, corporations aren't interested in the hassle of having more than one way to make money.
posted by Eamon at 12:47 PM on September 14, 2005

It does take the same amount of time as a paper check -- it's the exact same process. The difference is which end things start at.

When you deposit a paper check, your bank shows the deposit in your account right away (but probably puts a hold on it) and then it takes the 3-4 days to go through the system before it's confirmed and actually come out of the payor's account.

With an echeck, it goes the other way around, the payor sees the money leave their account and it takes 3-4 days before it's confirmed and appears in the payee's account.

With a regular check, the payor's bank is the one looking for confirmation that it's legit. With an echeck or EFT, it's the payee's bank (or payment service) that's looking for that confirmation.
posted by winston at 12:55 PM on September 14, 2005

They don't take that long to complete, no, but your comparison about an instantly clearing check isn't accurate either: that check isn't cleared instantly, your bank is just giving you some benefit of the doubt and opening up the money immediately.

As others have mentioned, the 'float' is a notable revenue generator for the bank. They have any number of strategies for paying themselves with things like that. The 'instant clear' they give you for those deposited checks (which I suspect if you check your agreements are limited to under 250-500 amounts and 'in-state' checks, depending on your location and if it's a bank or CU) are an easy sop to throw people that distract from some of the other more egregious things they do, as well as fend off efforts by local PIRGs to mandate the limits (as happened in Florida in the late 80s).
posted by phearlez at 1:36 PM on September 14, 2005

evariste: I do have the debit card, and I do have two bank accounts. If necessary, I can just use one as a passthrough for PayPal, but fortunately I don't have to worry about clients pulling funny business -- most are vetted by referral from people I trust, and I use a standard contract that would pretty much end up with me owning them after any kind of bait-and-switch payment tricks. I just get annoyed at the amount of time I seem to spend waiting for transfers to clear, is all.
posted by ubernostrum at 5:40 PM on September 14, 2005