ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Money Transfers: How Do Banks Work & Move Money?

Updated on March 16, 2018
Alessio Ganci profile image

Work: I believe it should be a pleasure first of all. And I hope one day everyone will have the opportunity of choosing job of their dreams

Banks are one of the most effective institutions you can rely on when it comes to keep money in a safe environment, without getting the risk of having them stolen. Banks offer various types of money saving options, accounts and investment tools, so that they can provide various types of services to people, both for payment purposes and for money protection.

Payments are made possible in many ways: for example, by using debit, credit or prepaid cards. In addition to this, one of the most useful services you can use in order to pay someone is by using money transfer procedure. Here comes one of the most interesting aspects regarding how do banks work: how are they physically able to move money from one institution to another? How can people and companies exchange money through different banks? The answer is simple but, in order to give it, we need to analyze two different situations.

Money Transfers between two Customers of the same Bank

An PostePay Evolution prepaid card with IBAN code, issued by Poste Italiane SPA italian institution
An PostePay Evolution prepaid card with IBAN code, issued by Poste Italiane SPA italian institution

Transferring money between two customers of the same bank is quite simple, as no real "transfer" is made at the fact. Let's take in exam a customer A who is going to send $1000 to a customer B. They are actually customers of Citibank, so this situation shows a money transfer between two accounts hosted by the same financial institutions.

In order to understand this situation, we should start by thinking about what happens when we load our account with money. When you deposit cash on your banking account, you are basically borrowing it to your bank, so that this last one is going to have a debt with you: having $2000 dollars on a Citi banking account means Citi has a debt of $2000 with you. If customer A moves $1000 to another Citi account (owned by customer B), he is basically telling the bank to reduce the debt with him and increase it with the other customer.

At the fact, no real money transfer is made and Citi is not receiving or sending money from and to the outside. All operations are made on the same banking systems, so there is simply an adjustment of balances. That is the reason why a money transfers made between two customers of the same bank is usually processed in the same day. Money transfers processed on the same bank are immediate in many cases.

Money transfer among customers of the same bank is just a balance adjustment: no real transfer is made!
Money transfer among customers of the same bank is just a balance adjustment: no real transfer is made!

Money Transfers between two Customers of Different Banks

Money are transferred through different commercial banks by passing through a central bank
Money are transferred through different commercial banks by passing through a central bank

When two customers of different banks are exchanging money, the fact is a little more complex, but not as much as you imagine. When a money transfer is made through the same bank, only the two customers and the bank are engaged in the operation. If the banks are different, another figure comes out: the central bank. Central banks are connected with all the commercial banks, making it easy to exchange money among them. So if customer A (Citi customer) is sending $1000 to customer B (Bank of America customer), he is basically starting this process:

  1. Customer A reduces his credit with Citi ($1000);
  2. The $1000 Citi has in extra, are sent to the central bank. Citi is basically giving those money to the central institution, without stipulating a credit with it;
  3. The central bank now has $1000 in extra: at the same way, it is going to giving those extra money to Bank of America;
  4. Now Bank of America is having $1000 in extra: it uses them to increase his debt with customer B, who will see those money credited on his banking account.

Money Transfer Through Same Bank
Money Transfer Through Different Banks
No real transfer is made
Transfer is made through a central bank
Balances are adjusted in a day
Balances are adjusted after money has been successfully moved to the other bank
Relationships are only among the bank and the two customers
Relationships are among the two banks, the two customers and a central bank
The differences between money transfer through the same bank and through different banks

Central banks play a main role in global economy. If someone is asking you "How do banks work?", the answer is that they work by constantly sending inputs and outputs to a central bank and then, to other banks. We are still taking in exam situations involving banks of the same country. In this case only a central bank is taken in exam. If we transfer money between banking accounts on different countries, we are following the same way. In this case, two central banks are involved: that of the sender's country and that of the recipient one. A middle passage will consist in the two central banks exchanging inputs and outputs before passing them to the commercial institutions.

For many people learning how do banks work is nice, also because it often happens not to think about it enough. Banking activities are something part of everyday life. Like many other common activities, we do not always think about the passage which makes these possible. By thinking about it, we start discovering that all the world is connected by a big network of banks. Without this big network, banks would be useless.

Did you already know how do banks work when they are going to transfer money between two parts? You can comment this article by telling your experience.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)