Electronic Fund Transfer

Electronic Funds Transfer (EFT) is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems, without the direct intervention of bank staff. EFT transactions are known by a number of names. In the United States, they may be referred to as electronic checks or e-checks.

According to the United States Electronic Fund Transfer Act of 1978 it is “a funds transfer initiated through an electronic terminal, telephone, computer (including on-line banking) or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account”.

EFT transactions are known by a number of names across countries and different payment systems. For example, in the United States, they may be referred to as “electronic checks” or “e-checks”. In the United Kingdom, the term “bank transfer” and “bank payment” are used, while in several other European countries “giro transfer” is the common term.

Types of Electronic Fund Transfer

The term covers a number of different payment systems, for example:

• Cardholder-initiated transactions, using a payment card such as a credit or debit card
• Direct deposit payment initiated by the payer
• Direct debit payments for which a business debits the consumer’s bank accounts for payment for goods or services
• Wire transfer via an international banking network such as SWIFT
• Electronic bill payment in online banking, which may be delivered by EFT or paper check
• Transactions involving stored value of electronic money, possibly in a private currency.

EFTs includes direct-debit transactions, wire transfers, direct deposits, ATM withdrawals and online bill pay services. Transactions are processed through the Automated Clearing House (ACH) network, the secure transfer system of the Federal Reserve that connects all U.S. banks, credit unions and other financial institutions.

For example, when you use your debit card to make a purchase at a store or online, the transaction is processed using an EFT system. The transaction is very similar to an ATM withdrawal, with near-instantaneous payment to the merchant and deduction from your checking account.

Direct deposit is another form of an electronic funds transfer. In this case, funds from your employer’s bank account are transferred electronically to your bank account, with no need for paper-based payment systems.

Types of EFT payments

There are many ways to transfer money electronically. Below are descriptions of common EFT payments you might use for your business.

1. Direct deposit lets you electronically pay employees

After you run payroll, you will tell your direct deposit service provider how much to deposit in each employee’s bank account. Then, the direct deposit provider will put that money in employee accounts on payday. Not all employers can make direct deposit mandatory, so make sure you brush up on direct deposit laws.

2. Wire transfers are a fast way to send money

They are typically used for large, infrequent payments. You might use wire transfers to pay vendors or to make a large down payment on a building or equipment.

3. ATMs

ATMs let you bank without going inside a bank and talking to a teller. You can withdraw cash, make deposits, or transfer funds between your accounts.

4. Debit cards

Debit cards allow you to make EFT transactions. You can use the debit card to move money from your business bank account. Use your debit card to make purchases or pay bills online, in person, or over the phone.

5. Electronic checks

Electronic checks are similar to paper checks, but used electronically. You will enter your bank account number and routing number to make a payment.

6. Pay-by-phone

Pay-by-phone systems let you pay bills or transfer money between accounts over the phone.

7. Personal computer banking

Personal computer banking lets you make banking transactions with your computer or mobile device. You can use your computer or mobile device to move money between accounts.