Why are bank transactions not instant?

It is a rather complex system, but here is a rough summary.

Interbank tranfers ultimately require a transfer of reserves at the central bank. As a concrete example, the bank of england system is the rtgs. Only the clearing banks and similar (e.g. bacs) have access to rtgs.

You can send a chaps payment fairly quickly, but that costs. Chaps immediately triggers an rtgs transfer once the sending bank agrees and so you can be certain that the money is being paid. Hence its use for large amounts.

Bacs also sits on the rtgs but to keep costs down it batches tranfers up. Because we are talking about bank reserve movements, checks have to be in place and that can take time. Furthermore the potential for fraud is higher than chaps since these are aggregrated transactions a layer removed, so a delay reduces the chance of payment failing after apparently being sent.

Faster payments is a new product by bacs that speeds up the bacs process by doing a number of transfers per day. Hence the two hour clearing. For safety it can only be used for up to 10k.

Second tier banks will hold accounts with clearing banks so they are another step down.

Foreign currency transfers require the foreign Central Bank reserve somewhere, and so must be mediated by at least one clearing bank in that country.

Different countries are at different stages in their technology. Uk clearing is 2h standard now but US is a little behind I believe. Much of Europe is speeding up.

Rather like bitcoin clearing, you have a choice between speed and safety. If you wait you are more certain the transaction is sound and have more time to bust the transfer.

Virtually all of these difficulties can be dealt with fast and cheap with automation, the real reason however is that banks tend to make profit with said money.

All banks have specialist teams that loan or invest such "float money" on overnight or shorter terms to generate income from it for the bank. Sometimes both the sending and the receiving bank do this, depending on their advertised terms of business (e.g. money paid into an account is credited on the third working day following the paying-in). When I worked in a bank in the 1990s, this cash was often loaned overnight to big customers to enable stock market transactions to go through etc.

In short: Your bank makes profit even on your payments. It has nothing to do with "cutting costs" or "regulatory issues".

I don't know why technically. But I do know that it is a ripoff of the consumer.

I transfer $1000 to another account. It disappears from my account balance immediately. It shows up 3 days later in the target account. So for those 3 days somebody had the money. They used the money without paying me or the recipient for that privilege. How is this not a ripoff.

It first came home to me years ago. A guy sent (wired) me $20,000 from denmark. I received it in my account 19 days later. (minus $50 in NY minus $50 in Chicago and minus $50 when it got to my bank in Ohio.) I believe it took so long because somebody was playing games with currency exchange rates.