5 facts about bank transfers that might surprise you

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Money is a funny thing. On one level, we all understand what a dollar or euro in our pocket means. But as soon as you start thinking about the monetary system and how money gets from one place to another, things get a lot more confusing. Why do bank transfers take so long to arrive? Is electronic money even real money? The answers are actually much more interesting than you’d expect. Here are our favourite facts about bank transfers.

When you send money, you’re not actually sending money (at least not right away)

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This might be the most surprising thing many people learn about bank transfers. Most of the time, your money doesn’t get sent until much later. 

Here’s what actually happens: you tell your bank you want to send money to someone at another bank. You give the identifying information of the other account, which is called the International Bank Account Number, or IBAN. They deduct the money from your account, and send a message to the other bank, confirming that the account exists and is able to receive your money. The banks then debit and credit themselves accordingly in their books. 

The money doesn’t get sent until much later. Banks usually wait until the evening, when computer power isn’t as needed by employees, and process transactions in batches. It’s like baking cookies: instead of wasting all your time baking just one cookie, you make a whole tray's worth. The system they send that money through in Europe is called the Single Euro Payments Area Credit Transfer, or SEPA transfer for short. 

The moment banks process their transactions and actually send money is the settlement. At that point, the money arrives at the recipient’s bank account. 

Before IBAN, things were a lot more complicated

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If you think IBANs are hard to memorize, you should have seen how things worked before. IBANs were created in 1997, and before that, every country had a slightly different system for how they referred to bank accounts. The information would include routing codes, bank information, branch information, and a ton of other details. The problem was that these codes were slightly different from country to country. If you sent money from Germany to France, for example, you might slightly mistype the routing code by putting it in the German format. Banks also couldn’t validate the information before sending it. The result was a lot of delayed payments and extra fees. 

IBANs were meant to change that, by standardizing the account information for countries around the world. Each country’s code would be a standard length, somewhere between 16 and 30 characters, and you’d be able to check in advance if the account you were sending money to actually existed. 

That was a big deal for 1997. Of course, memorizing a 20 or 30-digit number is still not super convenient. That’s where we come in… 

At Vivid, we’re trying to make bank transfers even easier 

Illustration by Vivid

We can’t change the entire banking system, at least not on our own. But we can make your life a little easier.

That’s why we allow you to send bank transfers using just a phone number. This works even if the person you’re sending to isn’t a Vivid user! The way it works is simple. If also the recipient has a Vivid account associated with their phone number, the money gets transferred instantly. If they don't, they get directed to a web page where they choose what bank account to receive the money in. We then send it using a normal SEPA transfer, which takes a day or so to arrive, generally. This way, we’re taking away the hard work of memorizing IBAN numbers. 

There’s a separate system for transferring lots of money at once 

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SEPA transfers are the payment system you’d know because it’s the one you’re likely using to send and receive money. But what if you had to spend a lot of money? Not just a few thousand, but millions or even billions of euros?

That’s where TARGET2 comes in. It’s a payment system meant for large-value payments, and is accessible to central and commercial banks. The banks can send huge amounts of money to each other, as long as each of them has an account with a central bank. 

What kinds of payments are these? Usually these involve the kinds of payments banks have to make to each other: if they’re selling a few million of a currency or stock and need to settle up quickly. 

Instant transfers are coming … someday

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So now you know the basics of how bank transfers work. By now, you must be thinking: why is this so complicated? Why can’t I just transfer money instantly?

You can… kind of. SEPA has a system called SEPA Instant which, as its name implies, allows for instant settlement of payments. Instead of processing payments in batches, each payment gets settled as it’s made.

Unfortunately, right now, not every bank is a member of SEPA Instant. But in time, it’s expected that most, if not all European banks will join the system. Until that day comes, you can at least enjoy the fact that you don’t have to memorize an IBAN anymore.