A Beginner’s Guide to Electronic Funds Transfer (EFT)
We are in a world with digital money and no cash in hands. In this digital wallet scenario, electronic funds transfer (EFT) is becoming tremendously popular and widely acceptable across the globe. Smartphones, digital wallets, and digital payments are revolutionizing the world with innovations.
Because electronic funds transfer is offering immense benefits to individuals and businesses, they are secure, safe, speedy, convenient, easy to use, reliable, and exceptionally cost-effective. All these unique features have made electronic funds transfer the primary fund transaction method.
EFT allows users to transfer money from one bank account to another without any physical money exchanges. Direct deposit is one of the widely used EFT methods. So companies usually prefer to use this method to deposit payroll directly to an employee’s bank account.
However, we have several other EFT funds transfer methods such as credit card, ATM, Fedwire, and Point-of-Sale (POS) transactions. These all take place using an electronic terminal. Hence, any funds transferred using an electronic terminal are considered as Electronic Funds Transfer.
The EFT is popularly used for credit and debit transfers, payroll payments, mortgage payments, etc.
How does an Electronic Funds Transfer (EFT) work?
EFT works based on the Automated Clearing House (ACH) network, one of the largest and most secured, reliable payment systems globally. Banks process the transactions by using the ACH network that connects all the U.S. financial institutions.
The ACH network-based transactions operate as a batch processing system. They are handled as batch processing throughout the day. According to NACHA, “the ACH network handles around 24 billion EFTs each year, accounting for more than $41 trillion transferred.”
However, for EFT-based fund transactions, the beneficiary party needs to provide the following information:
- Bank name
- Type of the account (checking or savings)
- Bank’s ABA routing number
- Recipient’s account number
The EFT is being greatly appreciated because of its paperless transactions nature, such as zero requirements of checks, stamps, envelopes, or paper bills that are antiquated. EFT has also reduced administrative costs, increased efficiency and security, and simplified recordkeeping.
Various Types of EFTs
Well, there are a variety of EFT methods.
- Direct deposit: As mentioned above, this method is most utilized by businesses to pay employees.
- Wire transfers: The wire transfer method is popularly used to make down payments on a house. It is often used for non-regular payments.
- ATMs: The ATMs are very convenient in everyday life. For instance, quick cash withdrawals and deposits, fund transfers, checking account balances are possible through ATMs.
- Debit cards: The debit card method is mostly used to conduct daily transactions, pay bills, make online payments, etc.
- Online banking: Users can pursue online banking, access account to make payments, do funds transfer, etc.
- Pay-by-Phone Systems: Users can pay bills, transfer money using the phone.
EFTs are most popular and, again, widely being accepted across the globe. They are simple with one-time setup processing, save processing fees, and convenient to use! So your go-to can be EFTs.