January 31, 2015

Money Transferring

I was expressing frustration with moving money around the other day and was asked to share what I knew. This is an incomplete list of ways to move money, and their consequences. Moving money (and in turn getting paid or paying others) is one of the most important yet strangely high-friction things a business has to do. On top of that, most of it is frustrating from a technical standpoint.

I'm not going to cover moving money on behalf of other people, which is worthy of it's own blog post. I also think it's one of the more interesting areas for exploration (as far as money is concerned). I'm also going to gloss over specifics around the Automated Clearing House (ACH) and other payment networks. Just know that it's actually a lot more complicated, with a ton more rules and a few more players then I talk about.


The cover photo is of NYC's MTA Money Train by "Orange Suede Sofa".


Cash is the easiest to understand. It's what we grow up with. It's a physical object that holds value and it's instantly convertible either to products or your bank account. The retail currency exchanges take a large cut, but if you're in a single country it can't be beat. Because of it's physical nature there isn't an accounting system in existence that doesn't require you to manually track what you spend it on or where it goes.

  • Cost: Low - Usually none unless you have to change currencies
  • Time to clear: Instant
  • Hassle: High - You have to go get it and then physically give it to someone.
  • Risk: High - No fraud protection
  • Traceability: Very little
  • Accounting Cost: High - No way to know who received it or why without keeping your own records


I don't like checks but they are very common and are almost as cheap as cash. The checks themselves are not actually worth money. I don't like them because they are unpredictable. If I give you cash, I no longer have it. If I give you a check, I need to ensure I have the money in my account until you deposit the check and it clears. It requires me to keep a separate log of accounting to ensure I don't accidentally double spend. The Automated Clearing House (ACH) processes is crazy too.

Here's the general processes:
1. I physically have to write how much money I want you to have on a piece of paper. (Or print it, but that isn't easier.)
2. I have to physically get it to you. (mail, in person, etc)
3. You have to bring it to a branch of your bank and deposit it. ("Mobile deposit" is great but banks usually only risk around $2000 max on a single mobile deposit.)
4. Your bank scans the check and sends it in a nightly batch processes to the ACH.
5. The ACH does some level of fraud protection that I am unclear of the specifics.
6. The my bank receives a notice of my check and verifies the funds and authorizes the withdrawal.
7. The ACH lets your bank know that it was approved.
8. Our banks reconcile the funds. (Do their own bank to bank transfers.)
9. Sometime in the past few steps your bank updated your account with some or all of the balance.

The worst part for me is that you have around 6 months to deposit the check. Some banks will allow you to try to deposit checks of any age.

  • Cost: Low - Unless there's a returned check, then fees are levied to both parties around $20-$60
  • Time to clear: Long - 2-4 days to clear plus 0-160 days to deposit
  • Hassle: High - Lots of physical interactions, lots of waiting and often you have to use the US postal system
  • Risk: Medium - Checks aren't worth money but they can be faked. You can also deposit a "bad check" which can incur you fees.
  • Traceability: High - Every check comes from an account and goes to an account. Accounts usually have names and it shows up as an item in your bank statement.
  • Accounting Cost: Low - It's easy to see to whom a check was written and the memo field usually says why (eg invoice number). It also usually reconcilable from the bank statements. That is of course they deposited the check.

Wire Transfer

This is pretty easy and can usually be done from an online interface with your bank. In the US it uses the ACH like checks but electronically sends the account information. Internationally it uses IBAN and SWIFT, which are neat. This will usually cost between $10-$40 to both send and receive.

  • Cost: Medium $10-$40 for all parties involved
  • Time to clear: 2-4 days
  • Hassle: Medium - You need address, name, account info, routing info and for the person you're paying to know what an ACH transfer is.
  • Risk: Medium - The money is usually immediately withdrawn. The medium rating comes from having near zero recourse if you send the money to the wrong place.
  • Traceability: Medium - I'd say high except if you have the information wrong you can't easily find out who you sent the money to.
  • Account Cost: Low - Same as checks

Direct Deposit

This uses the same infrastructure as checks and is usually free to the sender and receiver. Same hassle as a wire transfer with a little extra because you need a service to assist. I'm hazy on the details.

Online Bill Pay

Your bank will helpfully send a check. They may or may not debit your account and send a bank check. They may or may not fine you for overdraft fees. They may or may not send a check regardless of balance (and then fine you for a bounced check). They may or may not fall back to electronic means with larger companies that have accounts with them. For most small businesses, you'll get a check in the mail if someone pays you via this method.

I am unaware of the regulation of this feature.

Credit Cards

In the past you'd have to open a merchant account and negotiate fees. These days the merchant account is virtual and you'll get an ACH transfer for free with your cash minus $0.30 and %3 in a few days. Stripe, Braintree and a few others are great in this space.

  • Cost: Medium - $0.30 and 1.5-5% This can add up for large payments when compared to checks or wire transfers, but if you have volume and are a low risk you can negotiate the fee down.
  • Time to clear: Medium - You'll get the money in your merchant account instantly, but can't get access to it for 2-7 days depending on how nice your relationship is with your processor / merchant account and how much risk they think you are. If you're using a modern payment gateway it's usually 4 days and you don't have to have a merchant account.
  • Hassle: Low - Easy to initiate, money usually shows up without issue. Some larger charges will fail for unspecified reasons, but a phone call to the bank will usually clear it up.
  • Risk: Low - There is fraud protection on both sides of the transaction. You get to verify credit card details if you wish before authorizing the charge. If your card is stolen you usually get the charges refunded. If you are receiving money a chargeback can cost you $10-$75 but they are usually rare depending on your business.
  • Traceability: High - Everyone has their name on both sides of the charge.
  • Accounting Cost: Low - It's like another bank account. You know where your money went and where it came from.

Paypal, Venmo, Square Cash, etc

They use a combination of Credit cards, ACH transfers and debit card refunds to move money around.

  • Cost: Low - They range from free to credit card style fees
  • Time to clear: Medium - Unless you stay within their network you usually need to wait 2-7 days to get your money. You often need to "transfer" it into your bank account via the ACH.
  • Hassle: Medium - If you already have an account on the payment network it might be low, but chances are you or your client won't.
  • Traceability: Varies
  • Risk: High - There's a good chance you'll get your money, there's a big chance you won't know the rules of the network or be able to access your money right away. Fraud protection is often amped up very high on these networks and they'll lock down accounts involved in any transaction of scale, to give them time to check you out.
  • Accounting Cost: Medium - It's not unlike a credit card processors account but each system has their own reporting and accounting systems. You may or may not have accountability


This is a funny one. Currently there are many exchanges where you can buy and sell bitcoins. Some legitimate, some shady, some with large fees and some with very low fees. Coinbase for example lets you take payment with bitcoin and instantly transfers it to cash like a credit card processor would. It's fees are only 1% but may not give your customers the best exchange rate. Bitcoin to bitcoin transactions can be made with a transaction fee well under $0.05. Obtaining bitcoins isn't easy and their value is volatile.

  • Cost: Low - There are no or very low ($0.05 cents to 1%) fees depending on if you're keeping bitcoin as a currency or using it as a fund transfer mechanism.
  • Time to clear: Medium - Bitcoins will transfer in a matter of minutes - usually less than an hour to be safe. Getting your money from an exchange will either use the ACH or checks and that may take days to weeks.
  • Hassle: High - Coinbase makes it easy but very few people will have bitcoins or a coinbase account. Buying bitcoins without fees is very hard. Storing bitcoins online isn't recommended and it's easy to lose them as they can be erased or stolen.
  • Risk: High - Lots of bitcoin based companies have been hacked. It's not safe to keep large amounts of bitcoins online. There is no fraud protections. Some exchanges will even monitor what your coins were used for and shut down your account if they think you're part of illicit activities.
  • Traceability: High - There are no names on accounts but every transaction is public.
  • Accounting Cost: High - Try explaining bitcoins to your accountant. The statements from exchanges won't look much different from a credit card processor however.
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