Slashdot Mirror
Small Bank In Kansas Creates the Bank Account of the Future
HughPickens.com writes Nathaniel Popper writes at the NYT that the Citizens Bank of Weir, Kansas, or CBW, has been taken apart and rebuilt, from its fiber optic cables up, so it can offer services not available at even the nation's largest bank. In the United States the primary option that consumers have to transfer money is still the ACH payment. Requests for ACH transfers are collected by banks and submitted in batches, once a day, and the banks receiving the transfers also process the payments once a day, leading to long waits. ACH technology was created in the 1970s and has not changed significantly since. The clunky system, which takes at least a day to deliver money, has become so deeply embedded in the banking industry that it has been hard to replace. CBW went to work on the problem by using the debit card networks that power ATM cash dispensers. Ramamurthi's team engineered a system so that a business could collect a customer's debit card number and use it to make an instant payment directly into the customer's account — or into the account of a customer of almost any other bank in the country. The key to CBW's system is real-time, payment transaction risk-scoring — software that can judge the risk involved in any transaction in real time by looking at 20 to 40 factors, including a customers' transaction history and I.P., address where the transaction originated. It was this system that Elizabeth McQuerry, the former Fed official, praised as the "biggest idea" at a recent bank conference. "Today's banks offer the equivalent of 300-year-old paper ledgers converted to an electronic form — a digital skin on an antiquated transaction process," says Suresh Ramamurthi. "We'll now be one of the first banks in the world to offer customers a reliable, compliant, safe and secure way to instantly send and receive money internationally."
Because no one can fake IP addresses, or otherwise alter the results to their favor.. :|
He tried to kill me with a forklift!
This is the same tech refresh upgrade every big bank is in flight doing.
Old age and treachery almost always overcome youth and skill.
Hackers can now get that instant access to stolen cash!
Except that Interac has been doing realtime debit transactions for many years, across all Canadian banks, both at point of sale and at ATMs. It's good news if the US is moving in this direction, because it is an excellent system, but it would be a stretch to call it the bank account of the future when it has existed for years.
The UK has Faster Payments processing across all its national banks, which allow instant payments between bank accounts. Maybe the US is married to a daily batch processing paradigm but CBW is most certainly not the first bank in the world to move away from it.
But that's the national part. There is also a claim about instant international payments at the end, but this is done via Ripple.com which uses an internal pseudo-currency for operations, and is comparble enough to similar Bitcoin-based systems that maybe there's some "News for Nerds" here, but Pickens completely fails to mention this part at all, instead putting the glory onto a bank that uses Ripple.com.
Overall, some very confused reporting; in future Mr Pickens might want to read all the links he's posted and then summarize them for the audience. C minus.
I live in Chile and we have free instantaneous wiretransfers which are required by law to be protected by 2 factor auth, Banks still make boatloads of money, not sure how the US can still be in the dark ages in this regard.
So is using the IP address the banking equivalent of the SketchFactor app? You just happen to have an ISP whose pool of addresses contains a bunch of scammers. Will this banking software decide that you too are also a scammer? What are the other "risk" factors? ACH made no judgements on the transaction.
Hopefully they have some kind of one-time/vendor-specific account number rather than the actual account! Risk-based assessments are nothing new; hopefully knowing what the factors/algorithms are doesn't kill the effectiveness.
>> business could collect a...card number and use it to make an instant payment...real-time, payment transaction risk-scoring
Congratulations you've invented the credit card!
Having a day delay, at the discretion of the user, is a good idea to give users time to react to an ID/credit theft.
Perhaps not everything about ACH is antiquated, lolz.
Silly shill. Cover all the bases before you try to bury people.
If a bank in USA provides instant international transfers without $20 per transaction wire transfer fees or 3% per transaction Paypal fees, that could be very nice.
Do you know that little about financial stuff, or are you just generally a moron? A credit card is nothing like this. At all.
Tic-Tac-Toe, Global Thermonuclear War, and relationships all have the same winning move.
Until you think about it. So now the IRS/FBI/NSA will have our financial data in real time. Seems like just another way for the government to track us and look for violations of structuring payments.
Does the name Pavlov ring a bell?
This sounds like it's till a bit hacked together (risk scoring?), and only available for business transactions, but it's a step in the right direction. Another ten or twenty years and you might be enjoying something like Europe and Australia's transfer system, or Canada's debit system.
Having a day of float, while not much, is still something that's counted on for certain transactions. This is less good for the end user.
"instantly send and receive money internationally."
So other, international banks must already have a similar system then?
Thank you, Bradley Manning, Edward Snowden and so many others, for courageously defending humanity, my freedom and more!
They probably have good reasons not to offer a similar service.
So a bank wants to allow real-time banking instead of 'once daily' batched banking, and we ridicule them for it.
Admittedly, if we were ridiculing them for being a decade late, that would be one thing, but saying that real-time updates are BAD, that is just silly.
I doubt anyone would stand for 'once daily' batched updates to their email in-box, why shouldn't we be glad the banks are finally working to get rid of this system with our money?
What the heck would you need to impelemt scoring and risk assesment for a simple money transfer? That is what you have the trusted 3rd party for.
If I (Alice) want to transfer money to Bob, I instruct my bank to remove the sum from my account. (That's the step that needs to be authenticated, but not assessed by any credit score). Then my bank transfers that to the target bank. (I doubt credit score would help to safeguard that step and it should NOT be over public networks - if you can do an IP check at this step, something went wrong from the design phase)
And as a last step, they give the money to Bob (or his account) and I don't think either that for that it is neccessary or even helping, to check Bobs credit score or IP address. He is going to RECEIVE money.
Yes, things get a bit more complicated if you need Bob's small shop to trigger the money transaction from his customer Alice, but then again we don't need any checks of his credit history or his current dynamic IP address, but rather we need to check Alice's authentication.
bickerdyke
Disclaimer: I used to write banking software for a living, including implementing ACH management on both the customer-facing and backend processing systems.
The article is blatently misleading regarding realtime transfer of funds, but it takes some knowledge to understand why. Let's talk about ACH transactions.
ACH, or Atomated Clearing House, is the network that the majority of electronic funds in the US use. As the article points out, it's ancient and horrible, basically a 1:1 translation of the paper funds reconciliation to electronic format. In essence, a customer creates an ACH transaction, which is sent to two endpoints; the federal reserve a.k.a. The Fed, and an ACH operator. Just like a credit processor, the ACH operator is then responsible for delivering the funds to the destination financial institution (FI) and they make their money by charging the originating FI. The transfer only goes through once both The Fed and the operator finalize the transaction, which can take a day or more, and most of them are held for additional days to provide for reversals (effectively, cancellations).
Here's some important takeaways:
- To perform bank-to-bank transfers, you must either engage a third-party processor, or you must have an agreement (and process) with each individual bank you wish to transfer to.
- These transfers are subject to some very specific banking regulations, some of it relating to reporting to the Fed, who can block the transactions.
- Laws provide for effective reversal (issuing a reciprocal transaction, not necessarily a reversal) for 2 days for corp-to-corp transaction (CCD) and up to 60 days for transactions involving people (PPD).
- Just like most retailers, these are batch processed, not in real time, though the banks will reserve funds and adjust your balance accordingly. No one minds because legal protections result in at least a 2-day processing window anyway.
Okay, so what do we need to perform this transfer in realtime? Well, first, you'd have to get every bank in the US and the federal reserve to switch to a new system that actually supports real time transfers, instead of the ACH. Then we'd have to completely overhaul the 40+ years of recent laws that were written with a batch-based system in mind, including removing many of the funds reservations activities (and the legal protections that require them) in favor of a realtime system.
So how does this bank do it?
Based on the info from the article, it sounds like the bank is managing two accounts per individual account; the customer-facing one which serves the 'realtime' aspect, and the actual one that is used for the ACH transaction. The risk comes in when the bank accepts a credit or debit prior to it being authorized and completed, and thus the need for 'risk management' software, identical to the sort that ATMs use, especially when configured as a local authorizer (for branches too far from the main branch and others).
They just don't show the end user the reservation of funds like most FIs, and they assume the risk directly so there's no odd 'processing' credits or debits in their statement.
So, it's just smoke and mirrors. They have to use ACH if they want to talk to other banks, and they're not doing manual wire transfers. They just aren't telling their customers. Though if they hit the anti-terrorist check (I wrote the software that matches against the government list too, at one time), their customer is going to find out really quickly that it's really just an ACH after all, and they ~don't~ have those funds - it's illegal for the bank to provide them!
The bank's website isn't working for me right now.
I can already hear some of the western europe "hackers" doing the Mr. Burns patented "Excellent" from here, sitting in my desk.
The US is a First World country. Which is now a joke about having our head shoved so far up our business process ass that we can't see the water creeping up around our ankles.
Welcome to the 20th Century. Oops, we're not there any more!
I deliberately wasted several hours of my bank manager's time once. When he sussed what I was doing, he asked why. Because it had taken four days for a cheque to clear - a cheque I had received every month from the exact same employer, for many years, and paid in immediately using their fast-track cheque machines that take a photo of the cheque for you, then wrap it in an envelope and send it on.
And because of the delay, for a fraction of a second, my bank account went overdrawn by a few pounds even though the cheque was in the bank's possession. They delayed and delayed it, further than necessary or normal, in order to ENSURE I was charged for going overdrawn. The cheque was an amount enough to clear the transaction they bounced several hundred times over. They then charged me £50 on top as an administration fee.
I'm an IT guy. I know that transaction takes milliseconds to process. The fraud selection? That's in place 24 hours a day on CC transactions anyway - there's nothing special about that. This is just an extension.
The antiquated system of "it has to arrive at the other branch for the cheque to clear"? Nonsense and zero justification when you have the cheque in your possession. This stuff is chicken feed on the bottom of the banking balance sheets, but they can play it and make money by making it slow and cumbersome. Because most people will just keep quiet and pay it.
The only question I really wanted an answer to? Has four hours of your time cost the bank more or less than the (unfair, I would posit) overdraft fee you charged? What about the loss of my banking business? How much has that cost you?
Happened to run into the same guy at another branch when I was going in with my ex-wife to sort out her account. He ran a mile.
Sorry, guys, you can make all the excuses you want, but that transaction system is slow BECAUSE YOU MAKE IT SO, not because it needs to do. The real-time clearing is already in place - try using a blocked credit card and see how long the gap is between you reporting it missing and all your vendors saying they couldn't charge you card for your usual monthly payments. The same applies to Direct Debits (in the UK) and myriad other banking technologies.
I once recorded a 3 minute interval between my phoning my bank to cancel a Direct Debit and the company that it was paying phoning me up to threaten a lawsuit over non-payment (long story short, they "agreed to overlook the matter", including the complete refund they'd had forcibly taken from their bank account, after I offered to initiate the lawsuit for them).
It's all nonsense. Banking systems do nothing special nowadays, especially not the personal / small business banking sector of the industry. They don't need tons of supercomputers and overnight batch processing - they just do that to eke out to the last second how long your money is with them.
Congratulations you've invented the credit card!
I've always kind of wanted a bank account with built-in credit-card functionality. No overdraft fees possible, rather you pay credit-card style interest when your balance is negative, and earn bank-style interest when your balance is positive.
Of course, this is unlikely to be offered for just that reason... to the banks, overdraft fees are a profit center :(
I don't care if it's 90,000 hectares. That lake was not my doing.
> and as a last step, they give the money to Bob (or his account) and I don't think either that for that it is neccessary or even helping, to check Bobs credit score or IP address. He is going to RECEIVE money.
Remember we're trying to fight real-world fraud, where people do dumb things, malware exists, etc. There is a request to empty Alice's bank account and send all her money to Bob. We happen to know that Bob is a Nigerian prince. What are the odds that this transaction is fraudulent?
The next day, April 15th, there is a request to send $1,200 from Alice to the IRS. What is the probability that this transaction is unauthorized?
The likelihood that the recipient is a scammer is not just relevant, it's the crux of the issue. Even if Alice uses ten factor authentication, if "she" is sending money from her US account to a check-cashing store in Nigeria which is known for fraud , she's probably getting scammed. She might have even authorized the payment, but it's still fraud.
More like the inverse debit card. When I pay with a debit card, money is withdrawn online there and then. Why can't we do the same for deposits and transfers? I just checked here in Norway and money only transfers between banks four times a day, 05.35, 11.05, 13.35 and 15.35. I guess that's fast enough for my uses, but if I pay a buddy at 4 PM why can't he buy a beer with it at 7 PM? It's not like it takes three hours to make a transaction. I understand that settling balances is hell when things change 24x7 but surely there must be some way to deal with that.
Live today, because you never know what tomorrow brings
Requests for ACH transfers are collected by banks and submitted in batches, once a day, and the banks receiving the transfers also process the payments once a day, leading to long waits. ACH technology was created in the 1970s and has not changed significantly since.
Jesus Christ. How much do we pay these people?
Look at Capital One 360 (formerly ING Direct, but Capital One hasn't managed to totally mess it up just yet).
A number of credit unions have this (charging to a 3rd party like Mastercard or Visa).
I've often wondered how it is that banks get away with plastering account numbers on every check or who in their right mind would want a credit card tied directly to their bank account.
Slowness of international transactions is a feature affording banks an excuse to sit on the money day(s), collect interest and then charge exorbitant wire fees on top. Who knows it might also give them some time to review transactions but I doubt it.
The fundamental security problem with many electronic systems is they operate more like credit cards and less like paypal. Until the equation is changed such that only operation possible is "giving" rather than "taking" fraud detection algorithms don't have a prayer in hell and any "progress" is limited to deck chairs of the Costa Concordia.
I've always kind of wanted a bank account with built-in credit-card functionality. No overdraft fees possible, rather you pay credit-card style interest when your balance is negative, and earn bank-style interest when your balance is positive. Of course, this is unlikely to be offered for just that reason... to the banks, overdraft fees are a profit center :(
That's fairly common here in Norway if you apply for it, they call it "account credit" though you typically don't get the 30 day free delay, you pay credit interest from day one but at least your payments don't bounce. With most terminals being online it's actually pretty hard to overdraft a debit account these days, if there's no money in the account the transaction will usually be refused.
Live today, because you never know what tomorrow brings
Requests for ACH transfers are collected by banks and submitted in batches, once a day, and the banks receiving the transfers also process the payments once a day, leading to long waits.
In the US, the law says most funds must be available within, I believe, 2 business days. How is this a "long wait"? I know that in this day of zero-length attention spans, where people cannot go ten minutes (on a date) at Starbucks w/o checking their smartphones, that might *seem* long, but seriously it's not.
It must have been something you assimilated. . . .
We can do that here in Canada, using Interac via e-mail. Money leaves your account, goes into the Interac escrow account, the recipient gets an e-mail. They login to the Interac website, put in the password you gave them offline (or over the phone, SMS, whatever), and the money is transferred into their account.
It's not instantaneous, but nearly so. The recipient chooses when it's most convenient to receive the money. And the sender always has the option of revoking the transfer.
AFAIK, there's no reason you couldn't do a similar transfer to/from a business.
Wouldn't it be interesting for an employer to consider offering their hourly-wage employees a streaming (constantly updated) salary? Would that be a millisecondly-wage?
It seems to me this possibility might be one of the potential side-effects of this technology--that is, a business with a lot of electronic-cash turnover could pay-by-the-instant in real time. Somehow reminds me of flinty company towns, lacemaking by the piece in a cold, tiny, cottage (but with a webcam watching your work), and/or, on the other hand, profit versus gain...
That is, instead of a profit capitalism, under certain circumstances, could this just-in-time financial software lead to "gain capitalism"?
to the banks, overdraft fees are a profit center :(
I've never done business with a bank large or small that didn't offer an overdraft line of credit if you asked for it. Overdraft fees are simply a tax on stupidity. Balance your checking account properly and you'll never have one. Get a LOC for those few circumstances that may lie outside your control, like your employer messing up your payroll deposit or some such.
I've had a checking account for 17 years and I've never paid a single overdraft fee....
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
I'm not saying that I don't like to be able to electronically transfer some money very quickly, but there are also very good reasons to have a slow, well documented system as well. Personally I'd like it if my Bank offered several "old fashioned" safeguards, like requiring large transactions (say 50% of my accounts funds) to be cleared by me, in a branch office.
It's called Overdraft Protection by my bank. Bank-style interest today is what, 1.35%? Nope, more like 0.45%. CDs are going for 1%APY.
There is a scheme here.
deleting the extra space after periods so i can stay relevant, yeah.
... I apologize for my somewhat undiplomatic language, but the current wire payment system is a cluster-fuck of fail.
My company is based in Canada and accepts wire payments from Canada, the US, Europe, Australia, South Africa and the Middle East. Half the time, we see mysterious deposits appearing in our account without any useful identification. We ask our customers to specify invoice numbers when they make a payment. Sometimes that comes through. Mostly it does not. Sometimes we don't even get any indication as to who the money is from.
So then we need to phone our bank and they take days to track down who just paid us. It's a total nightmare.
I'd welcome wholeheartedly anything that can improve the situation.
"I've always kind of wanted a bank account with built-in credit-card functionality."
Umm... what do you mean? IT's always hard to tell because the systems seem so different. Here is how my card works:
I have a combined debit/credit card. When using it I can select to use debit or credit. When checking my balance I see my debit account balance, and my credit balance. My account can be positive while the credit side is negative, then I pay interest on the credit and gain interest on the debit account. My debit account can be on zero and credit on negative. It's even possible to have the credit "account" positive". They won't actually pay any interest then, but if I want to I can overpay my credit side and it shows up as positive balance. (no idea why, but it works). I can also use the credit side to pay the debit side, so that credit goes to negative and debit gains funds.
My bank calls me if there is something funny going to happen with the account. That would likely include over 50% of funds transactions, transactions to foreign countries, etc. non-reversable things. Thay have actually called me once, when I had reserved a hotel in Italy and paid them in advance. Guess it didn't somehow match my usual usage patterns.
I always though this was another one of those banking scams they got away with. You transfer money, and for a day it is neither on your or on the receivers account. Where is it then? In the bank's pocket, making them money somehow.
On a long enough timeline, the survival rate for everyone drops to zero.
just join a Credit Union. All the benefits of a bank with none of the BS. I switched after realizing my bank was manipulating the ACH system to maximize the fees they could hit me with - for example, bouncing my rent check by processing it just before the deposit that covered it.
For starters, if bank transactions were instantaneous, then the bank wouldn't be able to sit on your cash for 3 days and collect the interest that should have been yours. You may think that it amounts to nothing, but a mega-bank like Wells Fargo will have billions of dollars at any given time sitting in this queue. Each day some percentage of the transactions finally settle, but they are replaced with the next batch, and the end result is a constant pool of free cash for the bank. Cash is fungible, which means there is no practical, legal, or technical difference between the dollars coming in and the dollars going out. They could have most of it locked up in riskier investments, as long as they keep the minimum amount of free cash required to service each day's transactions.
Regardless of the details, you can bet your house the answer comes down to greed. In fact, any example of the US lagging other nations technologically comes down to greed one way or another, especially where government is involved (which of course is directly proportional to how much money is involved).
Canada has had this for ever
"...Ramamurthi's team engineered a system so that a business could collect a customer's debit card number and use it to make an instant payment directly into the customer's account —..." That sounds very much like the system we've been using in Europe for at least 20 years - ever since I've been in Europe, so possibly longer - especially if the receiving account user is using the same bank. Transactions to other banks typically arrive within hours, if not the following business day *anywhere in the world*. So I'm not sure about the news-worthyness of the article, beyond telling us yet again that the US is still playing catch up with the world in yet another industry.
http://about.me/jimm.pratt
We already do this in Kenya with MPesa; the real-time transfer of funds part anyway.
Literally every bank in Europe allows card to card transfers.
Even prepaid card to card transfers.
How many times did I go to my bank asking for my money and they outright rejected to give it to me because "the computers are down". So?? That is when you grab the ledger and start making handwritten notes in the ledger how banks did for centuries. Banks in Europe do exactly that, but I guess US banks are behind the times in that regards as well. Also, in Europe there are no more checks, too expensive to process and too easy to forge. I wonder how long it will take US banks to understand that.