
How do bank payments actually work? - alexbilbie
https://getmondo.co.uk/blog/2016/01/20/how-do-bank-payments-work/
======
pc86
I was just complaining to my wife about this earlier this morning (we are in
the US).

I made a credit card payment last Thursday (1/14) in the mid morning, maybe
9:45 AM. Ideally this should happen pretty quickly, but I know in the US the
infrastructure just doesn't match my current expectations. Seemingly there was
zero movement until my credit account was credited the payment Friday
afternoon, but the money was still in my checking account (no holds or pending
transactions).

The weekend goes by, no movement. Monday (a bank holiday) comes and goes, as
does Tuesday. I get a text message early this morning (~6:45 AM) that there
was a large withdrawal from my checking account - the payment showed up!
Nearly three full business days before the money was actually moved, and as of
right now it's still a pending transaction.

The cynic in my wants to think that it's so people who don't pay attention to
their finances are more likely to overdraw/double-spend the money, but part of
me thinks it's just because the US infrastructure around banking and payments
is so old it just isn't capable of anything approaching real time
transactions. I would love to see a logistical/technical explanation of why it
takes so long for this type of thing in the US.

~~~
jrcii
I've asked bankers at the branch about this before and received a vague answer
about how they need time to verify things, but I strongly suspect they were
just non-technical and didn't know.

~~~
ChuckMcM
I don't know how current it is but back in the 90's when I was dealing with
technical issues with payments at UBS (UBS was a big Sun purchaser) one of
their bankers described bank transfers as a giant exercise in "liability hot
potato". Which is to say that at each step of the way the person receiving the
funds was trying to avoid becoming liable for them until they were really
certain they had them in an account somewhere, and people sending funds wanted
to be absolutely sure the destination had accepted liability for the funds
before they were willing to release them. Because when it went wrong, they
ended up liable for funds they no longer had. And he suggested that there were
people that tried to make that true (basically stealing from the system) and
that it happened enough to be priced into the transaction fees.

The amount of money that was flowing on a daily business through the bank was
staggering.

~~~
jrcii
Given the crowd on HN I'm surprised there isn't at least one person chiming in
that works on these backend bank systems.

~~~
PeterisP
I've worked on those systems and there's not much more to say, the hot potato
analogy is pretty much a perfect description.

~~~
jrcii
What protocols and software stacks do they use? How are they networked? What
are the steps in the verification process? What prevents it from being able to
work in real time? Where is this type of information formally recorded? I had
a hard time turning it up. For such a critical and prolific infrastructure
it's unusually opaque.

~~~
rconti
I once worked with an ACH system where the transactions were in a txt file on
a Windows box that was, IIRC, copied over ZMODEM after a dialup modem
connection was opened to whatever the other party was (bank? processor? I
don't know). Obviously, given the liability involved, I never messed around
with it. But I always wondered what would happen if some amount was different
than expected. One would hope there's all kinds of verification going on, but
I kind of doubt it.

This was only 10 years ago.

~~~
otakucode
When I worked at a data center for a bank, we had basically the exact setup
you are describing. Part of my responsibilities was to take note of the amount
that came through via ACH on that Windows machine (Windows 3.11 actually...
this was in 2001) and enter it into a Lotus 1-2-3 spreadsheet, along with
totals which I got from reports that ran after the days batch processing
completed, and make sure they balanced. If they didn't balance, I had to go
hunting and pray that I simply transposed a number or typoed something along
the way... if I did not, I honestly don't know what happened. I had to call
one of the other employees to come in and orchestrate getting it fixed. (I was
alone at the data center, which consisted of a mainframe and a handful of
PCs... probably an order of magnitude smaller than what you would picture if I
just say 'data center') Luckily, it happened very very rarely. Maybe a handful
of times in the 4 years I worked there.

------
jslampe
Source: I one of the elected tech-reps on the The Faster Payment Task Force,a
Fed-chartered initiative to create a real-time improved bank transfer system,
like the one in the UK. I also work at Dwolla, a payment platform that has
exclusively focused on modernizing the backend ACH system for over 5 years, as
well as created our own real-time system for banks (See: FiSync).

There's a lot of good, and bad, information here. It's all impossible to
tackle, so I'm going to point to the good things the US has going for it.
(Worth getting other Fed Fast members and doing an AMA? Let me know):

1) As many mentioned, Same-Day ACH is coming (slowly but surely). Although not
real-time, it will be a helpful stopgap as more real-time systems come online
at financial institutions (see: #3). Combined with new Payment API Platforms,
like Dwolla, many of us are enabling meaningful access and adding flexibility
to an otherwise outdated platform. This will position platforms to take
advantage of these new timeframes when they start arriving late 2016 and 2017.
2) The major ACH operators, The Federal Reserve and the bank-owned The
Clearing House, are both making significant investments in their tech stack to
enable real-time capabilities (The Fed just inked a $17M deal with IBM to
update their software and capabilities, and TCH signed a deal with UK Faster
Payments Provider, VocaLink). 3) The Faster Payment Task Force is an
unprecedented market-led initiative, which despite all odds, that actually
making meaningful progress on aligning the criteria and expectations for an
interoperable real-time system. This is HUGE. Imagine cramming +300 lifelong
competitors, embattled legal adversaries, entrenched interests, and long-
standing rivalries in one room to debate the future of a trillion dollar
landscape. Now imagine them to agreeing to create a better system. And I'm not
just talking about improvements in speed, but better security, flexibility,
and capabilities that could enable the next wave of commerce. Keep your eyes
on [https://fedpaymentsimprovement.org/](https://fedpaymentsimprovement.org/),
big news is coming in the next few weeks.

~~~
otakucode
You've made me terribly jealous of the UK. I'm in the US and see our current
situation with regard to money transfer as an extremely dangerous one. Aside
from the annoyance of money transfers needing to go through a bank, the fact
that payment networks charge a PERCENTAGE drives me mad. It does not cost more
to move a larger number over the wire. There is no justification whatsoever in
charging a fee which gets larger when more money changes hands. And as more
and more of our economy moves away from cash and toward payments that flow
through these networks that skim percentages, we are quickly getting to a
point where banks and credit card companies are getting to skim a percentage
off of each and every single transaction that ever takes place in our entire
economy. That is madness. We are setting them up as de-facto tax collectors,
with the ability to levy and collect taxes with no public involvement. People
fought wars over that in the past.

I've had an account with Dwolla for ages, and absolutely love what they
provide. Flat fee money transfer. It saddens me that I can't use Dwolla
everywhere. Are the advances in the ACH system going to do away with fees that
include a percentage component? I would be very surprised if banks simply
decided to voluntarily step back from a system that will enable them to have
more control over the US economy than the federal government (there are many
tax-free transactions in our economy that the banks will still get to 'tax'
with their transfer fees, giving them more control).

Most people probably don't realize what a herculean effort you are involved
in. During college I worked in a data center for a bank as a mainframe
operator (this was 1997-2001), and processing the ACH data was one of my
responsibilities. The system the bank used was an NCR mainframe. It was so old
that during my time there, the company (it was actually a separate company
from the bank for some reason) received a call and was told that the only
other organization in the country still running that model of mainframe, a
restaurant in North Carolina, was getting rid of it and would give it to us
for free if we would haul it away. We setup a Disaster Recovery system with
it. I left the data center shortly before graduating college, and the bank was
being acquired by a larger bank which was going to bring all of the processing
into their own data center. However, about a decade later I ran into my old
boss and learned that the transition never happened. Moving away from that
ancient mainframe was apparently deemed too problematic/expensive so it
persisted. I would not be surprised if that mainframe was still running the
show for half a dozen bank branches, with its antiquated tape drives (the kind
where the tape is a big reel, 9-track I think, like the things you see in
films of mainframes from the 1960s). Banks are, as far as I understand it, the
pinnacle of 'if its working, don't upgrade it'. My hats off to you sir for
being involved with trying to move us forward!

~~~
Hannan
>> Are the advances in the ACH system going to do away with fees that include
a percentage component?

Didn't Stripe just debut ACH that had (admittedly an initial percentage based)
pricing capped at $5? They have a $10,000 limit per payment, so maybe you
that's not high enough for what you're talking about, but it does seem like
things will move that way.

I will say, the higher the dollar amount, it seems like there is an increasing
fraud/risk component that while not costing any more money to send/receive,
needs to be considered and paid for by someone.

~~~
jslampe
We live in a capitalist country where no endeavor willl be undertaken without
some vision for profitability. This is fair. Stakeholders in the new system,
the ones that put up the money to build and support the system (Financial
Institutions, providers, etc), will need to find a way to compensate
themselves for their investment and prove to their share holders the fiduciary
value of doing so.

From there, there are three factors that will most influence pricing.

1) Scale: how many transactions the system as a whole will process? We're all
familiar with Wires and how expensive they're compared to ACH. That's because
they don't have the critical mass or number of transaction ACH does. The more
transactions on the system, the less financial burden the system has to assess
on the end-users. 2) Market forces: How providers will price their services
all depends on the market and their target customers. You mention stripe's
percentage model, that's their business decision. Dwolla, a counterpoint,
offers a flat fixed monthly model. The intelligence that formed the pricing
models is what makes the free market so powerful. 3) Fraud: How this system
mitigates fraud (through tokenization, improved fraud sharing among
participants, better authorization practices, etc.) will greatly influence how
much financial burden is passed on to us, the consumer. Good news is that
we're starting over. LOTS OF POTENTIAL HERE!

------
jrcii
Regarding international payments, I dug into this a little one day out of
curiosity and ended up here:
[https://www.frbservices.org/eventseducation/education/fedwir...](https://www.frbservices.org/eventseducation/education/fedwire_chips_swift_format_info.html)
The PDFs on that page appear to show you precisely how the XML messages that
conduct the transfers are formatted

There's some interesting stuff I couldn't get to here
[https://www2.swift.com/uhbonline/books/hub/httoc.htm](https://www2.swift.com/uhbonline/books/hub/httoc.htm)

And some other interesting stuff covering these standards
[http://project.i20022.com/the-standard](http://project.i20022.com/the-
standard) [http://www.c24.biz/c24-io-standards-financial-messaging-
libr...](http://www.c24.biz/c24-io-standards-financial-messaging-libraries)

~~~
ryanjshaw
Cross-border payments are more definitely more interesting. There's a lot of
complexity that is outside the scope of the standards - research correspondent
(nostro/vostro) accounts and cash management, for instance.

Basically, you need to find a path from your bank to the target bank account
through the _cheapest_ path of intermediary banks that factors into account
fees charged along the path, expected daily transfers at that bank, the
payment's impact on liquidity and interest rates of cash left on books in a
particular account at a particular time of day vs. alternative options.

~~~
danieltillett
The thing about international wire payments is you never know what you will
receive. I send out an invoice for X and I get some seemingly random value
less than X. My bank can't tell me why - the best I can get out of them is
some intermediate bank along the way took out some fee. It makes it a
nightmare to match up an invoice with a payment.

If you wanted to exploits this effect for fun and profit you could always
deduct $50 to $100 from every invoice you pay and the recipient would just
assume it was some intermediate bank fee.

~~~
ryanjshaw
Switch banks? If your bank is using SWIFT, the MT103 message has fields to
track this information (fields 71F and 71G) and validations to ensure the
fields are populated correctly (i.e. 32A and 33B must reflect 71F and 71G
correctly). Any decent bank should be able to display the originating payment
instruction details for a given cross-border payment ledger entry. (I've
implemented SWIFT processing fees for cross-border payments.)

~~~
danieltillett
Well it is a little more difficult here in Australia. I have asked a few times
and the only way they can provide me with the data is to do a trace which they
charge me $50 for doing. Paying $50 extra to learn that some bank took out a
fee is not too helpful. I more wish I could stop it happening.

------
lucaspiller
I never thought I'd say this, but banks in the UK are actually pretty good.
Over the last few years I've lived in a few different countries and banks just
dont compare.

In the UK you can open a bank account for free, with no minimum balance and no
stupid charges (i.e. ATM withdrawals, even at your own bank).

~~~
gambiting
In comparison to where I'm from(Poland), UK banks seem to be stuck in middle
ages and it's infuriating.

\- cannot get two separate cards for the same account(unless it's a joint
account). Why would I want to? I'll explain in a second. In Poland I have a
visa debit + mastercard debit cards for the same account.

\- the cards have a limit of 300 pounds for ATM withdrawals. There is not way
to change that limit, I've asked at a few banks and that's just what it is,
even in an emergency. With my Polish bank, I can log in online and change it
on their website - I can set it to any amount, 100k a day if I want to. I used
my Polish card to withdraw few thousand pounds out of an ATM in UK and it
worked fine(the ATM itself had a limit of 400 pounds per transaction but I
just used it a few times and it worked fine). I can also set a separate limit
for internet transactions - which is why I have two cards. One card that I
carry with me all the time but which has 0 limit on internet transactions, and
another card which always stays at home but which has 0 limit on ATM and over
the counter transactions. If someone steals the card that is on me they can't
use it on the internet, and if someone steals the card at home they can't use
it to withdraw cash or to pay for stuff.

\- No ability to see pending transactions online on my debit cards until they
clear. This one is absolutely crazy to me. How can I know if someone hasn't
stolen my money if I can't see pending transactions? The only way to do that
is to call the bank. As far as I know, only lloyds shows pending transactions
online, Barclays had it as a "suggestion" for ages now.

\- Credit cards. In Poland, I apply for a certain limit when applying for a
card and I either get it or I don't. In UK, you apply for a card, have to sign
all the documents for the card, and only after the card arrives I can see what
sort of limit was given me. If I don't like it, there's nothing I can do -
well, I could ring the bank and ask, but they don't have to increase it. I
could close the account and apply somewhere else but that negatively impacts
my credit score, what a nightmare.

\- can't change the pin for my card online.

\- most UK banks won't send any of my documents to a foreign address even if I
ask for "security reasons" but my Polish banks sends all theirs to my UK
address no problem.

~~~
renaudg
> \- can't change the pin for my card online.

I can't see a way for a chip card's PIN to be updated online, without physical
access to the card.

~~~
gambiting
Well, I can change the pin for my Polish cards on my bank's online page, so I
guess the pin must be validated with the bank's servers before allowing any
transaction.

There's a screenshot of what it looks like on the website:

[http://i.imgur.com/p19315R.png](http://i.imgur.com/p19315R.png)

The third button from the top is "change pin"

~~~
neximo4
Its not actually possible for this to work with a 'chip' card.

If your polish card has a chip and you change the pin online, there is a
slight chance the change wont register. Many ATMs don't send a request to
check the pin/they check the pin stored on the chip.

This is why you have to be physically present at an ATM to change the pin.

So if you change the pin, and say go out of Poland and use it somewhere else,
without using it in Poland first, it would say the PIN is incorrect.

This risk might be why it is not readily available with UK banks.

~~~
gambiting
Well, I know that it definitely, absolutely works while abroad. How do I know?
Because the cards from that bank don't arrive with a pin. You don't get two
envelopes, one with the card another with a pin - it's just the card, then you
have to go online, log in, activate the card and set the pin. I've had new
cards delivered to my UK address, activated them online and they worked in the
UK without any problem(without ever being used in Poland first). So maybe
there is something on the chip, some variable saying "always check the pin
with server"?

------
tinkerrr
There was a discussion a couple of years ago around how ACH works. ACH is the
dominant system of money transfer in the US and takes 2-5 business days on
average for a transfer, compared to the real-time systems in many other
countries.

[https://news.ycombinator.com/item?id=7636066](https://news.ycombinator.com/item?id=7636066)

------
petke
I'm disappointed there isn't a guy moving a small gold coin from one vault to
another at the central bank every time I buy something with my debit card.
"looks like bob is getting drunk on cheap beer at the local pub again. If he'd
just order a bottle of wiskey instead I wouldnt have to run back and forth all
damn night. Maybe id get to go home and see my kids for once"

~~~
zhte415
This is actually how it works (or did work, recalling the stories of gold
manager at a bank) when central banks move gold deposited from one bank
(usually other central banks, not necessarily) to another. The gold bar is
moved from one pile or trolley to another. The clipboard list is updated, and
the daily tally is done at the end of the day to make sure nothing's been done
incorrectly.

Banks in stressed/developing countries may do cash transactions with each
other where there are issues of trust.

And then to abstract it a bit, there's the cash van moving money deposited at
larger, more trusted banks, to smaller commercial banks that have more
business customers (again, a much bigger differentiation in banking business
in developing/emerging countries), creating a long term net flow of cash (but,
if the commercial banks hopefully don't go bankrupt) not of money as credits
come electronically.

------
cmurf
I think the main reason is all seems pretty stupid is because the system, even
within one country, is so f'n goddamn huge with a lot of legacy stuff in it,
that bad UX is just inevitable, rather than being incompetent.

But an exception to incompetence is the EMV's decision in the U.S. to
transition from swipe & sign, to chip & sign, and later (2018?) to chip & PIN.
That really is just stupid. In the U.S. my debit card I never sign for whether
chip or swipe, I always use PIN. In Europe, that same card when swiped I'm
asked for PIN, if I use the chip it wants sign! WTF?

The delays of ACH seem less between friends at least if you use Venmo or
Google Wallet since that's effectively private currency (within that system)
and then only periodically use a "sweep" action if that balance gets higher
than you want.

~~~
otakucode
Do you happen to know if when the US gets chip and PIN it's also going to put
the responsibility for fraud on the consumer when the PIN is used?

------
m_eiman
The Swedish equivalent to Paym, called Swish, has been really successful.
Probably an interesting case to study for those trying to create the next
Paypal.

~~~
roymurdock
The reason Swish is successful is because it is owned and maintained by 6
Swedish banks [1]. So the payments network - the hard part - was already in
place. The banks just had to brand the app in an attractive way, offer
discounts/promotions to get user adoption, and provide good UX/UI.

I doubt we'll see a new Paypal until there is a new marketplace (Ebay) on a
new communications medium (internet) that attracts enough users that a new
solution needs to be created to deal with it.

[1] [http://ecommercenews.eu/swedish-banks-want-use-swish-
ecommer...](http://ecommercenews.eu/swedish-banks-want-use-swish-ecommerce/)

~~~
nissehulth
Ok, all you need is a good platform, a good brand, good marketing and a nice
app? So you're basically saying that the reason Swish is successful is that
they are doing a good job and deliver a good product?

~~~
roymurdock
I'm saying that they did not have to build a payments network from scratch, or
convince the largest banks in the country to provide APIs for their platform,
which would have been the hardest part of launching a similar product as a
private company or individual.

------
kbart
Good article. I'd like more technical details, especially security related, as
some pretty hard problems must have been solved to implement such system where
every error or vulnerability might costs tons of money. Any recommendations?

~~~
simonvc
Disclaimer: I work at Mondo and am the one implementing the way we talk to our
agency bank.

How it actually works is theres a Message Queue (IBM MQ) that is connected
over dedicated lines (MPLS or point to point, but not over the internet).

Each side uses a couple of layers of Crypto, including using Hardware Security
Modules (HSMs) to actually encrypt and sign the messages.

The crypto signatures also have legal standing in a sense, if the message is
valid and signed then the counter party or agency bank is authorised to
process it.

~~~
ryanjshaw
Banks are full of great lessons in system design that extend past the realm of
purely technical solutions. They regularly make cost vs. risk trade-offs that
make technical people nervous, for example, straight-through processing of low
value payments with the expectation that material fraud can be detected
through regular analysis/reconciliation/auditing and dealt with out of band.

------
stanmancan
In Canada we have something called an Interact E-Transfer that the major banks
all support. You add a recipients email address and create a "secret question"
they can answer. Then, you simply fill our a form that says "Send $X From
Account Y to Recipient Z". Depending on the bank the email is sent between
0-60 minutes later, the recipient clicks the link, logs in, and picks which
account to deposit it to. The whole process is super easy to use.

Most banks charge about $1 per Interact E-Transfer, but some accounts will get
a certain number of free transfers.

With all that being said, I just received an email from TD Canada Trust (One
of the major banks) stating that they are now imposing a $5 fee to cancel an
E-Transfer (previously free). I can't remember the last time I cancelled an
E-Transfer, but I'm still most likely going to close all my accounts with them
over it. I find it absolutely outrageous that they would charge you $5 to
cancel a completely automated process. The only explanation I can think of is
to nickle and dime their customers.

~~~
IkmoIkmo
In the Netherlands I take my phone and send money to friends, companies, tax
services etc, for free in about 15 seconds... arrives within minutes usually.
Then there's iDeal which is nice, too.

Creditcard payments are a different story, also pretty quick but not as
seamless, and not as popular either. I only have a CC to buy some stuff from
other countries, or when I leave the continent although my regular debitcard
worked in 4 different continents so far, too... Tbh my CC is pretty much
collecting dust.

~~~
warp
In 15 seconds? Between which banks is that?

My experience is quite different, sending from Rabobank to ABN AMRO seems to
take a few hours. From Rabobank to ING at least a day. From Rabobank to a bank
in Ecuador is usually faster (within 30 minutes), but not reliably so.

~~~
ricardobeat
Transfers between ABN accounts are effectively instant, one to three seconds
before the money pops up on the recipients account in the app.

Even abroad (South America) I still see my debit payments a few seconds after
completing them.

------
Animats
All the fast payment systems outside the US are Government-run. In the US,
online payments are run by private enterprise. The US doesn't have enough
socialism for this to work.

The US Fed has been pushing for faster payment processing, but the big banks
don't want it.

~~~
akhatri_aus
The system listed in the article is also run by a private company in the UK,
Vocalink. The government isn't involved in it.

Systems in most non US countries are run by associations run by the banks.
More examples include APCA (Australia), PASA (South Africa).

Not too sure where the socialism comes in.

In the US there is also Fedwire, which works in real time. It just costs a bit
more.

~~~
Animats
The UK system is now private, but the Payments Council, which set it up, was
sort of a quango. The UK has a history of organizations which are semi-private
but have close ties to the government.

~~~
chimeracoder
> The UK has a history of organizations which are semi-private but have close
> ties to the government.

That statement applies to the US as well.

------
gambiting
"The transaction limit has recently been raised to £250,000 per payment"

So what happens if you want to send more? Do you need to make a personal trip
to the bank or is there some other system in place?

~~~
jon-wood
You can still do it electronically, it'll just take more than a few minutes as
it has to run through the bank's daily reconciliation process. That's probably
OK though, I doubt many people have the need to transfer > £250,000 and the
entirety to be available immediately.

~~~
rikkus
Actually it can be quite stressful waiting for the transfer when buying a
house!

~~~
rconti
In the US, anyway, I had to do such big transfers via wire transfer, and while
it happens (almost) immediately, you have to catch the 10am or 11am (Pacific)
deadline, depending on the bank, or else you're waiting another whole day.

------
SwaroopH
India uses something similar – IMPS.
[http://www.npci.org.in/aboutimps.aspx](http://www.npci.org.in/aboutimps.aspx)

------
omh
This type of system looks like somewhere that a blockchain could be genuinely
useful.

Each of the trusted banks could be given access to the blockchain (rather than
needing proof-of-work) and it would work as a distributed ledger without the
need for VocaLink as a trusted intermediary.

Of course the question is how the costs of running VocaLink compare to those
of running a blockchain type system.

~~~
khgvljhkb
While bitcoin is very small compared to banks and credit cards, at this point
it is definitely cheaper to send bitcoin than to send Visa money. How it would
work if that blockchain was scaled to the level of VocaLink I have no idea
about.

~~~
wsxcde
No, in terms of the overall cost of operation of the system, bitcoin is most
definitely not cheaper. Transaction costs paid by the users are low because of
the inflation subsidy paid out to the miners.

In terms of overall costs, the bitcoin mining network alone (i.e., ignoring
the cost associated with running all the full nodes, the underlying network
and so on) costs $1MM per day to process a measly 100k transactions.

~~~
aback
The cost to secure the system is orthogonal to the cost of processing
transactions and rises and lowers proportional to coin price, providing a
level of security commensurate with the market value of the thing secured.

The cost per transaction is simply a function of the rate limiter that is
attached to Bitcoin. Bitcoin could secure many more transactions per second if
the rate limiter was removed.

> a measly 100k transactions

As I type this the network is averaging ~12000 txns per hour, or 288,000 per
day, FWIW.

~~~
afreak
12,000 transactions per hour translates to 200 transactions per minute or 3
per second. However, you're being generous here because what you're suggesting
is what it currently does at best, when in reality it is anywhere between 1
and 3 transactions per second, meaning that it is doing anything between
86,400 and 288,000 per day--that's a large spread.

Visa claims it can do 2,000 transactions per second or 172,800,000 per day and
Paypal suggests its maximum is 115 per second or 9,936,000 total per day [1].
At best, Bitcoin is able to handle 3% of the volume that Paypal is able to and
it doesn't even register as a blip when compared to a single major credit
card.

If we continue to read the link I cited for those numbers, we get these
details:

>Let's assume an average rate of 2000tps, so just VISA. Transactions vary in
size from about 0.2 kilobytes to over 1 kilobyte, but it's averaging half a
kilobyte today.

>That means that you need to keep up with around 8 megabits/second of
transaction data (2000tps * 512 bytes) / 1024 bytes in a kilobyte / 1024
kilobytes in a megabyte = 0.97 megabytes per second * 8 = 7.8 megabits/second.

>This sort of bandwidth is already common for even residential connections
today, and is certainly at the low end of what colocation providers would
expect to provide you with.

If we were to expect that everyone was to get onboard the blockchain, we would
have to assume that we're all going to start sucking up 0.97 MB per second, or
about 82 GB a day. This would mean that in a month, one would use just about
2.5 TB of bandwidth. If the average residential user were to want to transfer
2.5 TB for just a blockchain (ignoring modern life's pleasures like Netflix
and other streaming services), you'd have to find an Internet service that
would not impose a usage cap. As it stands with Comcast, if you exceed 300 GB,
you'll get charged $10 USD for every 50 GB you use [2], meaning that a month's
worth of transactions will cost you just about $450 on top of what you already
pay for the privilege of having access to a blockchain.

This doesn't even take into account that transactions are replayed once
confirmed so those numbers could end up even higher if the whole protocol
isn't changed. Heck, I am not even taking storage into account which is a
different problem all together.

The idea that blockchains are going to be the future is pure lunacy. It's
either going to be limited to data centres that can handle this load or it's
not going to be used at all. It has no future for the general public and is
part of the reason why Bitcoin in itself is not practical.

[1]
[https://en.bitcoin.it/wiki/Scalability](https://en.bitcoin.it/wiki/Scalability)
\- Bitcoin's "official" wiki backs this up

[2] [https://bgr.com/2015/11/19/comcast-data-cap-2015-bad-for-
us-...](https://bgr.com/2015/11/19/comcast-data-cap-2015-bad-for-us-all/)

~~~
aback
First off, the numbers I cited were not theoretical, they were the observed
network run rate at the time I posted.

Secondly, Bitcoin doesn't have to scale up to Visa levels, at least not in
2016. In 2016, it just has to scale up. And there's plenty of room to scale
up.

Bitcoin has a growth plan that subsidizes the expansion of the network (via
inflation and adoption) for many more decades. In two decades, the Moore's Law
equivalent of a 1MB block size is a 16GB block size. Even without additional
scalability, Bitcoin can process a lot of transactions with 16GB blocks.

------
tantalor
> Net settlement is used because it’s more efficient - it only requires a few
> hundred entries in the Bank of England’s ledgers each day for potentially
> millions of payments.

Not a very compelling reason... storage is cheap!

~~~
JshWright
Storage isn't the only consideration when comparing 'millions' of transactions
to 'hundreds'.

~~~
TheOtherHobbes
The banks still have to process millions of payments between them.

But they also have to process the BoE payments - which is an added overhead.

The only real benefit is confidence, because the BoE effectively acts as
escrow for all parties. So no one has to worry that settlement won't happen.

From the user's POV, it's not a bad system. It's vastly better than the
situation ten years ago, when you literally had to wait a week for a cheque to
clear - because the receiver had to validate it, and then post it back by
snail mail to the originator.

However, some transactions still use that system. I recently closed a savings
account and could only transfer the money by physically taking a cheque from
one bank to another, and waiting a week.

Basic transaction processing should really be part of the national
(international?) infrastructure. It would be hugely beneficial to all kinds of
businesses to have a simple, secure publicly available service for moving
money around, at all scales from microtransactions to many millions - ideally
linked to a free no-credit-offered cash account for everyone.

------
jxm262
This reminds me a bit of Prudio
[http://www.prudio.com/](http://www.prudio.com/) Saw that project on the old
assembly site (was a cool idea).

------
pmorici
Anyone who doubts why something like Bitcoin would be of use in banking should
read the part about net settlement and counter party risk.

This article describes the system for moving money within one country but
similar mechanisms exist for moving money internationally. Imagine the counter
party risk involved between banks who are governed by different central banks
in different countries half way around the world. Bitcoin removes the counter
party risk in transfers by making settlement instant per transaction instead
of net daily settlement in traditional banking.

The reason this is important is that these transfers revolve around credit and
when there is a banking crisis and everyone suspects everyone else's credit
worthiness then payment systems can break down.

~~~
hibikir
The security problem in a Bitcoin world is real though: The "instant"
settlement is equally instantaneous, and equally non reversible, when someone
has access to a private key. At the same time, if I lose the key, the coins
are gone.

So instead of being afraid of everyone else's credit worthiness, we now need
Fort Knox level security, and any breach of said security means losing
everything, permanently. It's like keeping savings inside a mattress, except
people can use automated to try to hack into everyone's mattresses.

You can have a different opinion of course, but seeing how even Bitcoin
exchanges get hacked all the time, it seems to me that the traditional banking
system is far less risky.

~~~
pmorici
The difference is you have no control over counter party risk you can only
choose to accept it or not. You can do a a lot of simple things to prevent
your Bitcoin from being stolen. The security problem with Bitcoin is largely a
myth boosted by people and companies that were paying little to no attention
to security or who were outright dishonest. People who kept their Bitcoins on
deposit with exchanges. didn't own Bitcoin they put themselves in a position
of being a Bitcoin creditor of an exchange.

~~~
ryanjshaw
Regularly improving regulatory requirements protect the average person on the
street from the majority of material risks. Cryptocurrencies have no such
protection.

Banking systems were not forced on the world; they evolved to solve real
problems, and continue to evolve. It's is unreasonable to dismiss the
structure of these institutions without a deeper discussion considering the
reasons for complexity and where the industry is headed.

I believe that cryptocurrencies may present some improvement in the status quo
at some point in the future, but not until there is more regulation (through
government and/or through private contracts enforceable by civil law).

------
jstanley
> Sadly, uptake of Paym has been slow.

I don't think this is very sad. I don't use Paym. I think account number +
sort code is easy enough to deal with and doesn't need to be changed.

~~~
aembleton
My friends know my mobile number. When they want to send me money, then I have
to give them my sort code and account number. Having a mapping from mobile
number to account credentials seems sensible to me.

I'm set up on PayM, but no one else seems to use it.

~~~
mpclark
I love it, but find it takes around the same amount of effort to send money by
PayM as it does to send it by regular bank transfer to somebody already set up
in my mobile banking app (my main use case is usually sending smallish amounts
of cash to my kids, like a modern-day Al Bundy). PayM could do with a really
nice streamlined app of its own, rather than being buried deep within each of
my banks' own apps.

------
TamDenholm
By the way, Mondo are doing a hack weekend this weekend and i'll be attending,
if anyone else on HN is, please shoot me a mail (see profile).

------
capex
Do we have something like FPS in Australia?

~~~
bbody
End of next year we should have
NPP([https://en.wikipedia.org/wiki/New_Payments_Platform](https://en.wikipedia.org/wiki/New_Payments_Platform))

------
phkahler
So everything seems to go back to money in accounts at the bank of England.
Where does that "money" come from? How are there non-zero balances there? What
stops someone at BoE from just changing a balance?

I guess changing an account balance without a corresponding transaction would
make automated checks (accounting verification) fail. But then we get back to
the question of how any money got in the system in the first place.

~~~
bboreham
The banks using the system pay money into their BoE accounts if their
transactions add up to a net outflow.

~~~
nhaehnle
No. If their transactions add up to a net outflow, banks _use_ the money that
is _already_ in their BoE accounts to make transactions in favour of the BoE
accounts of _other_ banks or the FPS (those where the net outflow went to).

Since this does not change the total amount of money at BoE accounts, it does
not affect the parent's question about where that money originally came from.

------
abcampbell
The US ACH system is actually what killed bitcoin as a currency fwiw.

It's like the system acting in self-defense

~~~
otakucode
You mean that's what made it so hard to get into bitcoin in the first place,
preventing its wider adoption? I know when I originally bought some bitcoin
(back when it was ~$3/btc) it took WEEKS. The US govt hadn't yet said 'we
won't kill you if you follow the rules and work as a money-handling
institution' so I had to create an account with Dwolla (badass service that
needs to see more adoption), which required the 3-day wait to verify my bank
account, then transfer money into the Dwolla account, which took another 3
days, then transfer from Dwolla to the exchange (MtGox but I luckily did not
let MtGox hold my coins).

Not too long ago, there were companies formed that used bitcoins faster
payment clearing to offer faster processing to some sort of trading companies,
I remember reading about their IPO. That was before the time for bitcoin
transactions to clear started growing significantly... according to an article
I found on HN a week or so ago, that's what's going to finally kill off
bitcoin. Due to not increasing the block size, either wait times or processing
fees will keep growing steeply.

