Why do payments to Credit Cards need "processing time"?

ICHAPMAN

Hi,

Stupid question, but one that bugs me.

Why, when you manually make a payment to a Credit Card company do they need "processing time" before it actually becomes credited to your account? (Yes I've had a bad experience, my own fault).

For example, with MBNA say that if you pay by card:

"Your payment will be completed on the next business day unless your request is received after 5pm, on a weekend/bank holiday, or after 2.30 pm on the last business day of each month, when it will take an extra business day."

Or a Faster Payment:

Faster Payments made between 8am and 4pm, Monday to Friday, will be completed and available for you to use within 2 hours of us receiving cleared funds from your bank. Outside of these hours, or on a weekend/bank holiday, your payment will be completed and available for you to use by 10am on the next business day.

What I want to understand is why the delay, and time restrictions. If I make a faster payment after 5pm - the money has still left my account, and is sat in theirs, so why is it necessary of it to wait until the next business day for them to actually credit it to the account.

When I'm in Tesco's with my full trolley and I go and pay with my debit card, they don't tell me that as it's after 5pm, I can't take the shopping until the following day - so that they can be sure the money has been credited?.

Likewise if I purchase some online music from Amazon on Friday evening, they don't tell me to come back on Monday after 10am in order to get the download links.

So what is different about payments to Credit Cards?.

For reference, my bad experience is that I made a faster payment at 5pm to an MBNA account on a Friday. The due-date was on the Sunday, but because it was after their 4pm cut-off they didn't credit it until the Monday - by which time - they classed it as a late-payment and withdraw a promo-offer.

If I'd made the payment an hour earlier than it would have been credited to my account on the Friday, and thus no-late payment.

My "experience" above isn't really what I'm looking to discuss, but is what prompts me to ask the question of why these need time restrictions and processing time etc, when high-street/online shopping does not.

Thanks

Iain.

StuC75

because things take time to go through, when you shop at tesco and pay by card, it will request an authorisation code from the bank for the transaction, but then takes a couple of days to complete and be posted to your account.. the store is happy for you to have the goods as they know they have the authorisation from the bank.. But then the bank takes a couple of days to go through.. check your credit card statements with mbna and will often see a transaction and separate statement date..

StuC75

in the case of the credit card you have made a few mistakes there..

1 - confusing Due date as "Thats when I'll pay it for".. when in fact its the absolute last date for them to receive that payment. you would have had approx 2 weeks from the statement being prepared to then make the payment.

2 - have a direct debit set for the minimum amount, extra payments can then be made outside of that scope with no worries about time taken to process.. With a direct debit you would also see that because of when they claim the direct debit those funds wouldnt leave the account till after you had normally made the payment - its just that they know its in progress so credit it when claimed..

When I was caught out over this over a bank holiday \ weekend falling then, I phoned them up very apologetically and they were happy to re-instate the deal and remove the charge as a goodwill as had been first time it happened for me as long as I set up the direct debit.. so sometimes if you have the appropriate tone when on the phone, and get the right person they can be helpfull..

Wheres_My_Cashback

StuC75 wrote: »

in the case of the credit card you have made a few mistakes there..

1 - confusing Due date as "Thats when I'll pay it for".. when in fact its the absolute last date for them to receive that payment. you would have had approx 2 weeks from the statement being prepared to then make the payment.

Yes, it's the very latest date to pay, but depending on the card there are many which can safely be paid on the due date and marked as paid immediately if paying by FP, Debit Card or Cash.
I see no reason to pay my cards two weeks before they're due, but if you're going to leave it right up until the last minute then you have to be very disciplined and know exactly how each card company operates or alternatively set up a DD.

agrinnall

The real reason is because they can, and as a result they make money on the time between the funds arriving in their account and being applied to your card. There is no technical reason why the two things can't happen on the same day, and some card issuers do just that. It should really have been included in the Payment Directive rules that came into force in january 2012, but appears not to have been.

Hominu

Some (most?) CC providers only update statements once a day, and only on banking days. So whilst a faster payment on a Friday night @ 10pm may increase your credit limit within 2 hours of being sent, it will not appear on your statement until Monday, and the due date is the date it must appear on your statement by.

So you can actually have the online system saying your "available to spend" is the same as your credit limit, yet on the next banking day see it decrease due to a £12 fee for late payment.

I don't think there's any need for it in this day and age, but they can get away with it and probably make a substantial amount in such fees, so they are unlikely to change it until forced to do so (kinda like banks with the new PSRs)

zerog

agrinnall wrote: »

The real reason is because they can, and as a result they make money on the time between the funds arriving in their account and being applied to your card.

Since the credit is "their money" anyway, it is more accurate to say that they are not losing as much as they would if they gave you longer to pay.

Your credit limit is generally updated immediately when you pay, so you can spend it all again without waiting for it to actually be processed.

agrinnall

That's true if the amount being paid isn't already earning the CC company interest, which would be the case for me as I never pay any interest. But I'd guess the majority of customers are paying interest and the longer it takes for the payment to hit the account the more interest the CC company charges. I once had to make a change to a CC system that delayed payments by an extra day, which made them £6m a year (and for which I got a very generous £20 bonus).

StuC75

Wheres_My_Cashback wrote: »

Yes, it's the very latest date to pay, but depending on the card there are many which can safely be paid on the due date and marked as paid immediately if paying by FP, Debit Card or Cash.
I see no reason to pay my cards two weeks before they're due, but if you're going to leave it right up until the last minute then you have to be very disciplined and know exactly how each card company operates or alternatively set up a DD.

There due on the date the statement is prepared its just that they give you whilst that date for it to be receipted. Yes some cards benefit with FP processing but its a chance you take. With promotional rates its always safest to pay minimum by Direct Debit and make additional payment without those constraints.

InsideInsurance

The majority of customers don't pay interest but that does include "dormant" accounts.

Banks typically have very old fashioned mainframe systems that run heavily on batch processing. The problem is that very few have the courage to dispose of terribly expensive systems that work to replace them with new systems that are probably hundreds of millions in spend and inevitably will have teething problems/ bugs etc.

Just introducing faster payment took 10 years.

Because of the batch processing aspect there has to be cut off times/ dates.

Paying using a credit card works slightly differently, the merchant up front will ask for authority for the payment and will get a yay or nay. After that (or simultaneously) they will ask for the money to be transferred.

Authority is given in real time, as clearly if you're in a shop they want to know they will get paid but payment to the merchant again is done as a batch job. In most cases a merchant wont actually receive the funds for 3 working days from the day they ask for the funds.

It is in part due to realtime -v- batch processes that it is possible to go over agreed limits etc