In Australia, the equivalent is EFT (Electronic Funds Transfer). You can deposit money to anyone's account by telling the bank their BSB (Bank/State/Branch number) and their account number; however this is not sufficient information to withdraw money.
To withdraw money: 1. at a physical bank branch: a. you put your credit/debit card in a POS terminal and enter your pin/sign to authenticate. b. provide yous credit/debit card and photo ID to the teller. 2. at an ATM: credit/debit card + pin number. 3. online banking: either the credit/debit card number and a password and often a pin as well, or a separate number and password.
All of these use an independent authentication source to the bank account number.
Also the delays quotes here are insane: In Australia, there are essentially 2 ways to pay for something (excluding cash): 1. EFT (Electronic Funds Transfer) 2. Credit card (possibly using a debit card) transaction.
On POS terminals, you can choose either; the differentiator being whether you want to use a savings account (EFT) which goes via your bank, or a credit (or savings account accessed via debit card) account, which goes via MasterCard/Visa.
All forms of EFT take 1-2 business days between banks, pretty much all the time; and they're universally free for the payer.
Credit/debit transactions seem to take 1 day universally.
We have a fairly stagnant banking system, with 4 major banks having basically the entire consumer market (and the vast majority of the nonconsumer market as well). Why, in a small, stagnant market like ours, do we fare much better than the US system?
[edit: I forgot to mention, checks are dead here, they're now almost only used for large transfers of money where: 1. you don't want to use EFT; 2. they're over the daily online maximum for EFT transfers, and you can't be bothered to go to a bank branch (although you can only get bank checks at a branch AFAIK); 3. You want an immediate guarantee that the ammount was paid and the date/time/payer/payee (as opposed to waiting 1 day for the payment to come through).]
Because it's descended from writing simple letters of credit (and by this I literally mean a letter that says "Hey bank, pay John here $15 out of my account kthx"), and giant ancient heavily regulated institutions are terrified of change.
The system wasn't designed exactly, it just sort of evolved
Other people have already weighed in on the fact that actually not all of the payment systems are free for the payer (even EFT via a terminal costs).
But ask yourself, why does it take 1-2 business day for this to happen? In the UK, the worst case scenario is 2 hours between different banks. And if the account transfer is within the same bank, it is instant.
In AU, even between St. George accounts you can see delays of up to 1 day. Insane! Especially since the money isn't changing banks but accounts within the bank.
The AU transfer delay is bizarre.
Not quite. Vendors can now legally add a surcharge to cover the cost for payments from a credit card. Some vendors traditionally refused Amex when they had to eat the charge, since Amex was something like a 4-5% cost to the vendor as opposed to the 1-2% costs of the other cards.
Why, in a small, stagnant market like ours, do we fare much better than the US system?
We have strong banking regulations, apparently. I heard somewhere that during the GFC, there were only ten banks of that kind globally that hung on to their AAA credit rating, and all four of the Australian big banks were in that ten.
Yeah, the real question I was getting at was, given the Australian market is even more insular and stagnant than the US, why do we have much better systems?
What you're saying sounds plausible; a comparison of the US and Australian regulations on deposit banks would be interesting.
No processing times too :)
They are minimal, but they are there.
Plus the fee for the terminal of course. Which varies significantly between banks in AU.
Specifically, you can do an EFT transfer from a bank account to any other bank account in Australia via online banking, and it's free (at least in all the times I've used it).
In the case of ETFPOS terminals, EFT is always free for the payer (the customer), and credit cards are usually free for the payer, but do sometimes have a fee for the payer (certainly AMEX and Diners).
As I've now been corrected on, both types of transaction have a fee for the payee (the merchant).
The fee for the terminal itself is definitely true - I was mainly thinking of fees in terms of payers, i.e. the customer, not the merchant.
Though given there are alternative methods for credit/debit payments (i.e. alternative terminal types, like the swipe thingy that plugs into iPhones) it'll be interesting to see if people keep the combined EFTPOS + credit/debit card terminals, or abandon the EFT side, as the number of non-debit bank/keycards dwindles.
Our bank regulations are a joke (in the last few years, we just nationalized a fraudulent bank for €2.7 billion and re-sold it for €30 million), and yet we have a similar system, plus free virtual CCs, plus an award-winning ATM network that doesn't charge any fees for usage/withdraws.
[1] http://www.npr.org/blogs/money/2013/10/04/229224964/episode-...
Once the accounts are linked, either party can pull/push money without the other's approval.
Interesting. I had come to a similar conclusion myself. I noticed that in paying my school fees all I needed was those two numbers (banking routing #, bank acct #) for payment with no further verification. As you have observed all of these details are readily available on paper checks.
One way to mitigate the issue of someone potentially wiping your account is to have two accounts. One public and one private. The private one would contain (most of) your actual funds whilst the public account, which you would share freely as needed would contain just enough funds to complete whatever transactions that you need to do. Sure, it is not as convenient because you have to manage two accounts but at least that way you reduce your exposure to your funds being completely depleted.
Anyway, good description of ACH above. Very few people understand how it works.
Seems to me like square cash is comparable to the extremely low friction nature of XBT to XBT transactions, but with fiat currency.
I'm not saying square did this in response to bitcoin, just that it's scratching the same (or a similar) itch.
There are also wrappers around this here like Chase's Quickpay or Ally's Popmoney but most require that both people use the same bank, or that you give your ACH details to a bank that isn't your own.
Paper cheques just have the routing/account numbers along the bottom, and AFAIK essentially work via ACH anyway, so they have all of the same downsides, plus taking longer to complete.
Also, the window for fraud with ACH is so great that when you tell one bank about another account's ACH details so that you can transfer money, they "authenticate" this by making small, sub-$1 deposit amounts, and asking you what the amounts were, to prove that you can see the target account. So this "linking" process takes the entire ACH transaction time as well the first time you do it. Some banks have taken to using a service called Yodlee which asks you for the target accounts' username and password. That's right, Wells Fargo asks for your username and password on Scottrade to authenticate the transfer because they don't trust the way ACH's liability lies. So this won't work to send $8 to your buddy anyway.
Moving money without a service like paypal/venmo/square/google wallet is really quite difficult, especially if you don't want to trust an organisation with a history of taking people's money (Paypal) or if you don't want to pay a transaction fee.