The Business-Technology Weave

May 15 2013   4:20PM GMT

‘Asset Bubbles’, The Speed of Electrons, and Your Money

David Scott David Scott Profile: David Scott

Asset BubblesWhat’s an ‘asset bubble’?  We’ll see in a minute, but first, some background…

Ever made a payment online?  Of course you have.

I now pay my credit card bill online.  I don’t do an automatic payment – I like some measure of “hands on” control.  But I know this:  Once I execute a payment to my card company, by clicking ‘Submit,’ I receive a confirming text message to my phone nearly instantaneously.  I’m talking about a couple seconds.

I pay my car insurance online.  When I execute payment, I get an e-mail confirmation almost immediately.  Within a minute, easily.

Same for cable.  Same for power.  These transfers (both in terms of money, and communications) happen with a speed of execution that is extremely efficient.

Not so for certain other transactions.  When I initiate a transfer to my bank from PayPal, I’m advised that the funds will be in my bank account between 3 and 5 days’ time.  Meantime, my PayPal balance is 0 (or down by whatever amount I’m transferring).  So, where’s the money in the meantime?  And why can the transfer not be immediate, as in the former cases above?

When I do a bank-to-bank transfer, I receive a similar counsel:  The money will be in my other account in approximately 3 days.  Meanwhile, the originating account is debited – but there is no credit (yet) on the other end of the pipe.  Where’s the money?

Well… it’s obviously in some kind of limbo.  That money does exist:  It’s not vaporized while “in transit.”  However, wherever it resides, you can bet it is making money in the form of interest, or lending itself to investment.  How?

Just consider the one case – that of PayPal:  They are transacting money all over the world.  PayPal is handling money in the millions, likely billions, of dollars.  At any given moment in time, PayPal has a tremendous amount of money in limbo, suspended between various accounts during those 3-to-5 day delays.  This represents an ‘asset bubble’ and that pool of money on a balance sheet is a resource:  That resource of money is earning interest, or funding investments – at least, it seems to me.  Meantime, you wait for your money to transfer at the speed of… well, something other than electrons.

This would seem to be a newsworthy story, and a ripe area for a little legislation.  A 3-to-5 day delay is not necessary in vetting the transfer of money.

What do you think?

2  Comments on this Post

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  • LisaBr505
    Anyone who has a problem with such a solution is probably doing something bad and is a threat to society.  They may just be some leftist hippie type who value privacy on some weird philosophical grounds, but they'll just need to suck it up and get in tune with the 2000's and learn what it means to deal with the terrorism which is all around us everywhere we look. Good luck with a new bubble, as you can always apply for speedy loan at the end!
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  • TomLiotta
    OTOH, instantaneous transfers can create significant difficulty in catching fraudulent transactions. I've made large web purchases that resulted in calls from my credit providers to verify that the transaction was valid. The necessary insertion of human interaction probably saves a lot of money for us..Also, while I agree that some money is lost by us individuals and larger amounts are gained (in aggregate) by the financial institutions, I don't think we individuals would gain by 'fixing' the situation. At current interest rates, I might see as much as a dollar or two extra over a year's time if it worked in my favor. But the businesses that provide the services would see a big chunk lost. I have zero doubt the their loss would be passed on to us anyway..Personally, I'm much more irritated at the relationship between credit-card companies and high gasoline prices than I am at a 3-5 day float (which is a shorter period than it was 20 years ago)..Tom
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