Meow Technologies, Inc.
Electronic funds transfers (EFTs) have become an essential way that money moves in today's digital economy. Whether you’re an individual making online purchases or a business paying employees and vendors, there’s a good chance EFTs are facilitating your financial transactions. But what exactly is an EFT payment and how does it work? This comprehensive guide will explain everything you need to know.
An electronic funds transfer refers to the electronic transfer of money from one bank account to another. EFT transactions are completed electronically without the need for paper checks or direct intervention by bank employees.
The term EFT is an umbrella one that covers various types of electronic payments. Some common EFT payment methods include:
So in short, an EFT payment involves electronically moving funds instead of using cash or checks. It’s an convenient, efficient way to make and receive payments.
EFT payments require two parties to work effectively - the sender of the funds and the receiver.
When the sender makes a payment, whether an individual or a business, the appropriate payment network moves the money from the sender's account to the receiver's account electronically.
For example, when you use your debit card at the grocery store, you (the sender) are approving a transfer of funds to the merchant (the receiver). The payment network facilitates the funds transfer in real-time, often within seconds.
Another example is direct deposit of payroll. An employer sends an employee's pay to their bank electronically through direct deposit. The money moves from the employer's bank account to the employee's bank account through the Automated Clearing House (ACH) network, usually taking 1-2 business days to settle.
There are a few common types of EFT payment methods recognized in the U.S. Electronic Funds Transfer Act (EFTA). Understanding the differences can be useful as a consumer or business owner.
Electronic checks, or eChecks, are a convenient alternative to paper checks. They allow payers to transfer funds using bank routing and account numbers without needing to provide a paper check. Merchants can use your checking details to create an electronic check for a one-time or recurring payment.
Direct deposit allows companies and employers to electronically pay salaries and other recurring payments directly into customer, employee, or vendor bank accounts. No more waiting around for checks to arrive in the mail! Direct deposit is reliable, convenient, and guaranteed to avoid getting lost.
Many companies allow customers to pay bills through automated phone systems. After dialing in, you can use IVR technology to approve a transfer of funds by entering your payment details.
You’re likely familiar with withdrawing cash at an ATM using your debit card. But did you know that you can also make balance inquiries, deposits, transfers between accounts, and sometimes even purchase mobile top-ups and gift cards? These are all examples of EFT transactions.
If you use your credit card then technically you’re authorizing an EFT payment. When you swipe your credit card, funds are transferred from your credit account with the issuer to the merchant. You can also make EFT payments directly to your credit card balance from a bank account.
There are numerous advantages associated with electronic funds transfer technology for both businesses and consumers:
For businesses in particular, offering customers reliable EFT payment methods for invoices, accounts receivable, and subscriptions is extremely beneficial. Accepting electronic payments makes it simpler to track cash flow and predict revenue cycles too.
While EFT services provide many advantages, consumers should also be aware of a few key risks:
Thankfully there are precautions you can take to minimize risks, like:
You can also contact your financial institution right away if there are discrepancies on your statement or fraudulent charges to dispute those transactions.
Finally, how exactly do ACH transfers relate to EFT payments? ACH stands for “Automated Clearing House,” which is an electronic funds transfer network that connects US banks. ACH transactions are a specific type of EFT transfer processed through the ACH network in batches.
Some characteristics of ACH payments:
Meanwhile, EFT refers to any electronic movement of funds whether via ACH, wire, or other networks. So all ACH payments classify as EFTs, but not vice versa.
Understanding the EFT landscape provides confidence for both personal and business finance when leveraging electronic payments appropriately. As digital transactions continue growing, properly utilizing secure EFT methods saves significant time and money.