Who pays who for bank transactions?

Alex9384

I was just wondering, when I send money from bank A to bank B, is there any cost to any of those banks besides the cost of electricity to run computers? If there is a cost, which bank pays it and to whom?

Same question about direct debits. Does anyone have an idea? 

F1shyFingers

The recipient pays the charges.

The bank pays it to whoever runs the scheme they're sending payments through.  In the UK that would be BACS, and more rarely, CHAPS.

There are going to be subscription fees to be a member too.

F1shyFingers

said:

The recipient pays the charges.

The bank pays it to whoever runs the scheme they're sending payments through.  In the UK that would be BACS, and more rarely, CHAPS.

There are going to be subscription fees to be a member too.

To correct the above since I can't edit, both will pay the charges.

flo22

With Bacs the Service User pays for the transactions processed (they pay a file processed charge and volume of transactions processed charged).  The scheme sends the charges to the Service Users bank monthly and these are applied by the bank to their commission.

For FPS the banks are charged for the volumes sent/received.

john1488786

Slightly off-topic and probably a silly question but after doing a bank transfer does money actually physically move between the 2 banks even in this digital age? If so, how does it actually work? I guess it gets complicated for overseas SWIFT transfers? Thanks

MattMattMattUK

john1488786 said:

Slightly off-topic and probably a silly question but after doing a bank transfer does money actually physically move between the 2 banks even in this digital age? If so, how does it actually work? I guess it gets complicated for overseas SWIFT transfers? Thanks

Almost all money is digital not physical, there is no transporting cash between banks. 

john1488786

MattMattMattUK said:

john1488786 said:

Slightly off-topic and probably a silly question but after doing a bank transfer does money actually physically move between the 2 banks even in this digital age? If so, how does it actually work? I guess it gets complicated for overseas SWIFT transfers? Thanks

Almost all money is digital not physical, there is no transporting cash between banks. 

But if someone won 10 million notes on the lottery, how would the bank give that out in cash notes if the winner decided (as would be their right) they wanted to keep it under their mattress/floorboards instead of the bank? Ok chances are practically nil of that ever happening in real life but curious to know in such a case where the bank would get hard cash from if most money is kept as digital?

Ballard

john1488786 said:

MattMattMattUK said:

john1488786 said:

Slightly off-topic and probably a silly question but after doing a bank transfer does money actually physically move between the 2 banks even in this digital age? If so, how does it actually work? I guess it gets complicated for overseas SWIFT transfers? Thanks

Almost all money is digital not physical, there is no transporting cash between banks. 

But if someone won 10 million notes on the lottery, how would the bank give that out in cash notes if the winner decided (as would be their right) they wanted to keep it under their mattress/floorboards instead of the bank? Ok chances are practically nil of that ever happening in real life but curious to know in such a case where the bank would get hard cash from if most money is kept as digital?

I'm not sure that anyone has the right to demand cash in such large amounts. If such a demand was agreed to ith the bank then I would expect a hefty fee to be levied as it would be expensive to insure the transport of cash to the bank.

flo22

The banks each have an account at the Bank of England.  The settlement entries for each payment scheme are processed to the Bank of England account - that is the money movement.

Ballard

john1488786 said:

Slightly off-topic and probably a silly question but after doing a bank transfer does money actually physically move between the 2 banks even in this digital age? If so, how does it actually work? I guess it gets complicated for overseas SWIFT transfers? Thanks

To simplify things:

Moving GBP domestically:

Your account at Lloyds to an account with NatWest
   Lloyds has an account at NatWest.
   Lloyds call this their Nostro account (derived from the Latin for 'our') NatWest think of it as a vostro (your) They should be equal
   but opposite (e.g. 1000/-1000) depending on which book your looking at
   Lloyds debits your account & credits their nostro account relating to their account with NatWest
   Lloyds sends a Swift message to NatWest to ask them to debit their vostro account with them and credit the beneficiary
   account
   Your account has been debited, the beneficiary account at NatWest has been credited. NatWest have debited Lloyds account
   which will reconcile at Lloyds with the credit that they posted in their own books.

Moving USD between Lloyds & NatWest works in much the same way except that both UK banks will hold accounts in New York that will need to pass entries.

   Lloyds has an account with (e.g.) Bank of NY
   NatWest has one with (eg) JP Morgan
   Lloyds sends a message to BONY to ask them to credit NatWest's account with JPM
   Lloyds sends NatWest a message to credit the beneficiary
   etc.

There are other things at play but that's the gist of it and I hope that it makes some sense, although I fear that I mightn't have explained it well enough.

Ballard

Alex9384 said:

I was just wondering, when I send money from bank A to bank B, is there any cost to any of those banks besides the cost of electricity to run computers? If there is a cost, which bank pays it and to whom?

Same question about direct debits. Does anyone have an idea? 

Swift messages cost both banks a few pence. The Nostro accounts will need to be reconciled (mostly automatic but with some human intervention). Banks charge each other for the service of maintaining nostro accounts and there's likely to be a usage fee. The details will need to be checked for Anti-Money Laundering/KYC issues. Software purchase/upgrade fees (reconciliation/core banking/AML off the top of my head).