What Is an EFT (Electronic Funds Transfer)?

Electronic funds transfer refers to the transfer of funds through an electronic mode. The transaction can take place between bank accounts, individuals, and financial institutions.

Despite traditional payment methods like cash and checks, this method is quick and peer-to-peer. Some of the major electronic funds transfers (EFTs) include ACH, mobile payments, credit card transactions, and electronic checks.

How Does an EFT Work?

We’ve defined the EFT payment meaning. Now, we move on to how electronic fund transfers work.

The working process of EFT involves two parties:

1. 1. Sender
   2. Receiver

The sender and receiver can be an individual, a business firm, or a financial institution.

The sender begins the transaction through a mobile app, online banking, or the payment gateway. The sender must enter details such as the recipient’s name, bank account information, and the transaction amount.

The sender will authorize the transaction using the password, PIN, or OTP. Upon authorization, the bank initiates the payment process, and the recipient receives the funds. Automated Clearing House (ACH) transactions are a widely adaptable process in the United States.

Electronic Funds Transfer Example

What is an EFT payment? We’ve already understood it well. Let’s understand the electronic funds transfer example by assuming the following scenario.

Suppose a customer, Mr. Smith, wishes to pay the utility bill via Electronic Funds Transfer (EFT). He will use the bank’s website or app to accomplish the EFT billing process while adopting the listed steps:

1. Log in to the Portal

Initially, he needs to log in to the online banking portal. Once he logs in to the system, he needs to navigate to the bill section.

2. Adding Details & Amount

Mr. Smith needs to add the required details, such as the consumer number, ACH routing number, date, and amount. Once he fills in all the details, the next step is to submit them.

3. Transaction Processing

After submitting the details and amount, the bank will send an authentication request to Mr. Smith. One-time password is a common authentication process. Upon approval of the transaction, the amount will be deducted from Mr. Smith’s account and credited to the utility firm’s account. This will be done through an electronic payment system like ACH (a common method used for utility bill payments).

In this way, the user will be able to avail of EFT billing securely.

What Information Is Required for an EFT Payment?

Along with knowing what EFT transfer is? It is also essential to know what details are required for it. Certain information is required for a successful electronic funds transfer (EFT) payment transaction. This information is related to the sender and receiver. Some of them are as follows:

For Recipients

• • Recipient’s bank account number
  • Recipient’s bank routing number
  • Recipient’s bank name
  • Account type
  • Account name

For Sender

• • Sender’s bank account information
  • Total amount to be transferred

Codes (for bank purposes)

• • SWIFT code
  • IBAN (International Bank Account Number)

Different Types of EFT Payments

What is an EFT? When you define it, you must also be aware of its type. Multiple types of EFT payments serve different purposes, which are as follows:

Credit Cards & Debit Cards Transactions

Many customers use credit and debit cards during point-of-sale (POS) transactions. The money is transferred from the client’s bank account to the merchant’s bank account. This is another type of EFT that involves electronic payments.

ACH

Automated Clearing House is another EFT type in which transactions are sent through the ACH network. Additionally, it utilizes the batch concept to process payments. ACH transactions are more economical than wire transactions.

Peer-to-Peer Payments

Peer-to-peer transactions occur over the internet through transaction apps. Here, both the sender and receiver have their accounts to send and receive money. PayPal, Apple Cash, and eWallet applications come under this category.

Direct Deposit

It is one of the common EFT payment types, typically useful for payroll purposes. It involves a direct payment of the amount into the recipient’s account. Direct deposit is a common method for managing recurring bills and payroll, particularly when wages are paid electronically.

Electronic Checks

From the name itself, you can determine its form. It is a type of check that comes in digital form and is useful for transactions. However, these are only useful for business purposes rather than personal use. A routing number and a bank account number are essential to complete the transaction.

ATM Transactions

A cash withdrawal process at an ATM is another example of an EFT, where an instant transaction occurs. The cash withdrawal process begins as soon as the bank receives the information indicating that the user has inserted their debit card.

What Are the Benefits of Using EFT?

EFT is very beneficial for individuals and businesses. Electronic fund transfers are now part of daily life. Here are the key benefits of it that you must be aware of, along with the EFT payment meaning:

Cost-Effective

Electronic funds transfer is cheaper than the traditional transaction method. There is a low or no EFT service charge. Also, it eliminates several costs associated with cash or checks. Overall, EFT provides affordable fund transactions by eliminating hidden and recurring charges.

Quick Transfer

EFT works rapidly compared to traditional methods, which typically take 1 to 2 business days to complete. There is an instant transaction, and the beneficiary receives the money easily.

Secured Transactions

Electronic funds transfer offers a secure transaction. It prevents unauthorized access by encrypting the sensitive information. Multi-factor authentication, such as one-time passwords and biometric authentication, is another factor that enhances security.

Systematic Recording

EFT payments provide a systematic record of transactions. It is possible to track the particular transaction in a short time. Overall, electronic funds transfer provides an organized record-keeping.

Convenient to Use

EFT payment methods are hassle-free and lack complicated concepts. It enables users to quickly and securely transfer funds. Both parties, the sender and receiver, experience convenience in transferring the funds.

What Are the Disadvantages of Electronic Fund Transfer?

EFT is highly beneficial for businesses, but it also has some disadvantages in terms of security & limitations. Here is a more breakdown of the same:

Fraud Chances

No doubt, EFT offers various security measures, but it doesn’t provide 100% theft protection. Electronic transactions are prone to fraud risk. Phishing attacks, identity theft & hacking are some major fraud risks involved in it.

Technical Issues

Due to a high reliance on technology, software glitches and technical problems are common in EFT. It negatively impacts the overall process, resulting in transaction delays.

Transaction Limit

There is a transaction limit for high-value transactions in the EFT. Users are unable to transfer a high-value amount at one time. Its limitation causes a delay in the transaction.

Limited Access

EFT’s lifeline is the internet, and they function properly within a stable internet connection. This limits electronic transactions and makes it inaccessible without an internet connection in remote areas. Even some banks and financial institutions are not a part of EFT.

How EFT is Different from ACH Transfers? (EFT vs ACH Transfers)

ACH is a component of EFT. Both EFT (Electronic Funds Transfer) & ACH (Automated Clearing House) are crucial terms. However, they are different in the listed ways.

How EFT is Different from Wire Transfers? (EFT vs Wire Transfer)

Both EFT & wire transfers are useful in the electronic transfer of funds. However, they differ in terms of scope, cost, and processing speed. Wire transfers are a component of Electronic Funds Transfer (EFT). Thus, EFT has a broad scope, while wire transfers are limited.

Moon Invoice – A New Way to EFT Transfers Through the ACH Network?

Moon Invoice provides a reliable & fast transfer of funds. This billing software enables businesses to accept payments quickly and securely, directly from the customer’s bank account.

It enables users to integrate Stripe, which supports ACH transfers. Additionally, it offers various payment systems to businesses. It is simple to set an automatic payment reminder for all the due payments.

Additionally, professionals can easily track the payment status and generate custom reports. They can also easily set the recurring payments for their ongoing ACH invoice payments.

Overall, Moon Invoice is the right platform to choose when speed, accuracy, reliability, and security are the major concerns during payment.

Last Words

While closing the discussion on what an EFT payment is, we recommend using Electronic Funds Transfer (EFT) as a preferred method. It is reliable, quick, and secure compared to cash and checks. The scope of EFT is quite broad, encompassing credit card and debit card payments, ATM transactions, direct deposits, ACH transactions, and other related transactions. The choice of method can vary depending on the specific needs of the business or individual.

Overall, EFT is a good choice for businesses to upgrade their payment process. Incorporate it today with the Moon Invoice.

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