I expect banks to start charging a $65 per transaction premium to interface with this system.
FedACH, or "direct deposit", costs pennies wholesale [0]. The value proposition of Venmo/Zelle is not just that they're instant, but that the fees are not insane. Compare that to retail banks which charge upwards of $35 for a "next-day ACH".
The Fed should impose fee caps to encourage adoption.
The real cost to ACH is fraud, not the electronic processing, per se. The faster a payment settles the easier and more profitable fraud becomes as it makes it easier to cash out and run.
Low fees, fast transfers, high volume/high value--you only get to pick two of the three. (Okay, maybe that doesn't quite work, but you get the idea.)
Once upon a time I heard a quote from a PayPal CEO that was something along the lines of "we used to have a lot of competitors, but they all failed because they thought we were all in the business of transferring money. We're actually in the business of fraud prevention."
I'm not exactly an expert on clearing, but isn't the reverse also true? FedACH's 24+ hour turnaround makes a whole slew of scams (e.g. fraudulent cash-in, legit cash-out[1]) possible that wouldn't be with an instantaneous system.
[1]: I send you, good samaritan, $500 "by accident" and ask you to return it. You return it, my original transaction never clears, and I'm $500 richer.
That's how check kiting works, and AFAIU banks long ago stopped permitting withdrawal of funds that haven't cleared, unless they have other reasons to trust you or to claw back their money.
Perhaps there still are modern equivalents to kiting. I dunno. But, yeah, in any event fraud is a real problem. It's why we can't have nice things, at least without paying an insurance premium.
I think reversibility/non-immutability is one of the sides of this iron triangle, as Bitcoin currently supports all three you listed, but is a fraud risk because while you can transfer a practically unlimited amount globally for $1 in an hour, there is no “undo”, which is, in various ways, a blessing and a curse.
Bitcoin holder and user for ~5 years here. As a comparison of two of those features, against Faster Payments (which is what the Fed is proposing creating a similar system to):
Bitcoin is slow - it takes minimum 10 mins with high fees, or in times of congestion, hours or days with low fees. Faster payments takes minimum a few seconds, maximum 2 hours, for processing, no fees involved.
Bitcoin is expensive - fees are variable depending on congestion on the network, and current value of BTC. Faster Payments charge nothing to transfer 0.01 - 100,000.00 GBP (in reality, 10k - 100k, depending on your bank. I have banks that allow 25k and 50k) in a single transaction.
Bitcoin is a wonderful experiment, wonderful proof of trustless immutable transactions, but as far as a payment system goes, is only better in one way, and worse in many others.
The fees are variable with congestion, sure, but in practice are very low, and even when “high” are less than what some people are mentioning the retail cost of a single one of these new fed transactions might cost (routinely, not congested).
Also, you cite speed, but Bitcoin transactions confirm sufficiently in the usual case in 20-40 minutes, where two hours is the upper bound you mentioned for the new fed system.
Bitcoin is also functioning today, isn’t censorable, and is transnational. The new fed system isn’t due to be operational for years, and will only serve a single country with fewer than 4% of humans living in it.
I think you are exaggerating the downsides of code that is working and providing value today.
Faster Payments exists today, costs nothing to the end user, and usually takes seconds.
Bitcoin processes 200-500k payments per day[0].
Faster Payments processes 230k payments per hour[1].
Bitcoin may be superior to what currently exists in the USA as provided by banks, but it isn't compared to existing private sector payment solutions, and it definitely isn't compared to what other countries have already implemented successfully in their banking system.
Again, long time bitcoin holder and user, I'm painfully aware of the downsides having paid absurd fees and still ended up waiting hours for a transaction to finally get accepted into a block.
Bitcoin's great as a speculative asset, but it's not so great as currency.
Venmo is free for non-commercial uses and there are weekly or monthly limits.
If you want to accept venmo for commercial purposes or more cash than is usually allowed, they charge you as if it were a credit card transaction. 2.9% + 0.30.
I think they’re talking about wire transfers. Those are $35 at one bank I use (which automates them) and free at another (which makes you call someone and fill out PDFs in triplicate).
Comments
I expect banks to start charging a $65 per transaction premium to interface with this system.
FedACH, or "direct deposit", costs pennies wholesale [0]. The value proposition of Venmo/Zelle is not just that they're instant, but that the fees are not insane. Compare that to retail banks which charge upwards of $35 for a "next-day ACH".
The Fed should impose fee caps to encourage adoption.
[0] https://www.frbservices.org/resources/fees/ach-2019.html
The real cost to ACH is fraud, not the electronic processing, per se. The faster a payment settles the easier and more profitable fraud becomes as it makes it easier to cash out and run.
Low fees, fast transfers, high volume/high value--you only get to pick two of the three. (Okay, maybe that doesn't quite work, but you get the idea.)
Once upon a time I heard a quote from a PayPal CEO that was something along the lines of "we used to have a lot of competitors, but they all failed because they thought we were all in the business of transferring money. We're actually in the business of fraud prevention."
PayPal uses Ironfist approach to cure fraud.
It's known to freeze large amount of cash balance without contacting you or getting anyone to talk to you about this.
Could you provide the source for this quote?
I'm not exactly an expert on clearing, but isn't the reverse also true? FedACH's 24+ hour turnaround makes a whole slew of scams (e.g. fraudulent cash-in, legit cash-out[1]) possible that wouldn't be with an instantaneous system.
[1]: I send you, good samaritan, $500 "by accident" and ask you to return it. You return it, my original transaction never clears, and I'm $500 richer.
That's how check kiting works, and AFAIU banks long ago stopped permitting withdrawal of funds that haven't cleared, unless they have other reasons to trust you or to claw back their money.
Perhaps there still are modern equivalents to kiting. I dunno. But, yeah, in any event fraud is a real problem. It's why we can't have nice things, at least without paying an insurance premium.
I think reversibility/non-immutability is one of the sides of this iron triangle, as Bitcoin currently supports all three you listed, but is a fraud risk because while you can transfer a practically unlimited amount globally for $1 in an hour, there is no “undo”, which is, in various ways, a blessing and a curse.
Bitcoin holder and user for ~5 years here. As a comparison of two of those features, against Faster Payments (which is what the Fed is proposing creating a similar system to):
Bitcoin is slow - it takes minimum 10 mins with high fees, or in times of congestion, hours or days with low fees. Faster payments takes minimum a few seconds, maximum 2 hours, for processing, no fees involved.
Bitcoin is expensive - fees are variable depending on congestion on the network, and current value of BTC. Faster Payments charge nothing to transfer 0.01 - 100,000.00 GBP (in reality, 10k - 100k, depending on your bank. I have banks that allow 25k and 50k) in a single transaction.
Bitcoin is a wonderful experiment, wonderful proof of trustless immutable transactions, but as far as a payment system goes, is only better in one way, and worse in many others.
The fees are variable with congestion, sure, but in practice are very low, and even when “high” are less than what some people are mentioning the retail cost of a single one of these new fed transactions might cost (routinely, not congested).
Also, you cite speed, but Bitcoin transactions confirm sufficiently in the usual case in 20-40 minutes, where two hours is the upper bound you mentioned for the new fed system.
Bitcoin is also functioning today, isn’t censorable, and is transnational. The new fed system isn’t due to be operational for years, and will only serve a single country with fewer than 4% of humans living in it.
I think you are exaggerating the downsides of code that is working and providing value today.
Faster Payments exists today, costs nothing to the end user, and usually takes seconds.
Bitcoin processes 200-500k payments per day[0].
Faster Payments processes 230k payments per hour[1].
Bitcoin may be superior to what currently exists in the USA as provided by banks, but it isn't compared to existing private sector payment solutions, and it definitely isn't compared to what other countries have already implemented successfully in their banking system.
Again, long time bitcoin holder and user, I'm painfully aware of the downsides having paid absurd fees and still ended up waiting hours for a transaction to finally get accepted into a block.
Bitcoin's great as a speculative asset, but it's not so great as currency.
[0] https://www.blockchain.com/en/charts/n-transactions?timespan...
[1] http://www.fasterpayments.org.uk/press-release/faster-paymen...
Venmo is free for non-commercial uses and there are weekly or monthly limits.
If you want to accept venmo for commercial purposes or more cash than is usually allowed, they charge you as if it were a credit card transaction. 2.9% + 0.30.
Also, PayPal owns venmo now.
Is that still common? None of my banks / credit unions charges for incoming or outgoing ACH transfers.
I think they’re talking about wire transfers. Those are $35 at one bank I use (which automates them) and free at another (which makes you call someone and fill out PDFs in triplicate).
But they most likely are not same or next day. Mine take 3-5 days to go through.
The banks are making money on the float.
Sadly, yes, for outgoing through Bank of America.
Chase has free instant ACH to your own accounts now. Though some suspect it's using Zelle under the hood.