As noted in a previous blog, ACH transactions historically have taken 2-3 days to settle. Yet dozens of types of transactions need to happen much faster, especially ones related to buying and selling of assets like real estate. There must be a better way! This is where wire transfers come in.
The “wire” in wire transfer is short for Fedwire. Fedwire is a system operated by the Federal Reserve, our nation’s central bank. Banks or credit unions that participate can send payments to each other instantly. Fedwire also uses routing numbers to identify financial institutions. However, not every financial institution participates in Fedwire, so just knowing your bank’s routing number does not automatically mean wire transfers can be processed.
There is a lot of cost to being a Fedwire participant. Because payments are settled instantly, they cannot be reversed and there is absolutely no room for error. As such, there is tremendous security that the Federal Reserve demands of participating institutions. It is a huge expense for institutions that just don’t have enough wire transfer requests from their customers to justify it.
This is why Brooklyn Coop accepts and sends wire transfers for our members through another financial institution called an intermediary. We see perhaps 20-30 wire transfers a week versus other institutions that might have hundreds each day. Our intermediary is Alloya Corporate Credit Union, and anyone sending a wire transfer to a Brooklyn Coop member does need to have the information of our intermediary before the wire can go through.
Some fast facts:
Who’s in Control – The Federal Reserve controls Fedwire. Note that this isn’t the government, though it isn’t entirely private-sector either. The Federal Reserve does charge fees for each transfer and keeps whatever profit it earns by operating Fedwire.
Cost – Wire transfers are quite expensive, upwards of $30 per transfer, because the information must be checked manually, usually by two people. Remember that they cannot be reversed so mistakes are permanent.
Vulnerability to Fraud – Fraudulent wire transfers are extremely unusual given the security at Fedwire itself, plus the involvement of personnel double-checking all wire transfer information.