Tuesday, August 24, 2010

When technological advances DON'T affect "real-time"

Last Tuesday morning - on the same day that I left on the trip that I won't discuss - I posted something that talked about how "real-time" can vary among industries. For example, "real-time" for a computer-aided dispatch system could be different from "real-time" for a different application.

But the post contained an underlying assumption that as technology improves, the times that are required to do things can get shorter and shorter.

That assumption, like many assumptions, turned out to be a faulty one. But before I explain why, let me share what things were like way back when I was younger.

If someone went to the grocery store, they would often pay for goods with something called "cash." If you have never heard of this term, it is a payment system created by the Federal Government that you can use, even today (in some places), to make purchases. So if you had to pay $6.83 for something, you would get out several pieces of cash, the total of which had a value of $6.83. In this example, you would take out something called a "five dollar bill," and something called a "one dollar bill," and a variety of things called "coins."

As you can imagine, this system was somewhat cumbersome, so instead of using cash, people at a grocery store would often use something called a "check." While it was also cumbersome, it avoided the need to carry all those bills and coins around, and because it tied directly to your bank account, you could make huge purchases without having to cary a bunch of cash around. Imagine spending $50 at the grocery store at one time! Checks let you do that.

However, there was one little peculiarity about checks. As I mentioned, checks were written against your bank account. However, it would take some time for the bank to find out that you had written the check. If you went to the grocery store on a Saturday afternoon, the check would sit in the grocery store's cash register. Eventually all of the checks would be collected, but it could conceivably take days for the checks to actually make it to the bank, which meant that even though you spent $50 on Saturday, the bank wouldn't know this until Monday or possibly Tuesday.

Of course, some people used this to their advantage. Let's say that you got paid on Friday. As long as you deposited your paycheck on Friday before the banks closed, you could actually start spending your money on Thursday!

Well, provided that the bank honored your paycheck that quickly. Sometimes banks would place a hold on checks, which effectively meant that they were using your money before you could use it yourself. The big boys always win.

Of course, things such as "cash" and "checks" aren't used all that much any more. The big thing now is the fantastic plastic - credit cards, debit cards, gift cards, what have you. Unlike checks, these cards are tied into vast computerized systems, which can theoretically calculate your total balances and potential balance changes within minutes. The days of float are over, and any transaction you make is recorded within the hour, updating your balance at the same time.


The one thing that I did share about my trip was the fact that I took a plane from Ontario to San Francisco. For my trip, I took one carry-on bag and one checked bag. You know what that means - a $25 fee. (You can now deduce that I did not fly Southwest to San Francisco.) Because my airline did not accept cash for the baggage fee, I had to use a credit card. I did a similar thing when I flew back to Ontario on Saturday.

Whether I used a credit card or a debit card, you would think that the transaction would be recorded the same day. But it wasn't - not because of the bank that issued the card, but because of the airline. Here's what one of my banks showed the day after one of my flights:

$25.00 Temporary merchant authorization
Amount may change - waiting for final amount from merchant

Now I don't know why this particular airline only provides a temporary authorization for baggage fees, and what they anticipate they are going to change. I could assume that they are reserving the right to ship my bags for free, but somehow I don't think that's their intent. I suspect that because they charge the fee before they actually weigh the bag, they're reserving the right to charge more if the bag weighs too much.

Temporary authorizations are also used at places such as gas stations and restaurants. At gas stations, they can be used before the gas is purchased to temporarily authorize the potential amount of gas that you may purchase. So even if you only end up putting $6.83 of gas in your car, your credit card temporarily shows a $50 or $100 or whatever charge. In this case, the gas station eventually adjusts the dollar amount to the correct amount.

And even when temporary authorizations aren't used, sometimes it takes forever for the business to submit the bill to the credit card company. There have been times when I have returned from a trip, all ready to submit my expense report...and some of the expenses haven't hit my cards yet. Hotels seem to be notorious at this; it seems that I don't see hotel charges until a few days after I have checked out. Maybe they're holding the submission of the amount to the card company so that they can first check and make sure I didn't steal any towels.

So in essence, even with debit cards and credit cards and the like, the update of account balances is not instantaneous. Why not? Because in some cases the merchant doesn't know how much was actually purchases. And perhaps sometimes the merchant is lazy about getting all those danged expenses turned in.

It would be interesting to compare businesses based upon how quickly they submit charges to the relevant card companies. I wonder if faster submissions are correlated with more profitable firms.
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