electronic fund transfer process

What Is Electronic Fund Transfer Process

April 14, 2022

Money transfer refers to moving money from one account to the other. That can be a bank account, credit union account, or a mobile wallet. Electronic money transfer refers to moving money online via direct deposit, i.e., using the internet. Nowadays, financial companies have moved steps higher to allow the remote sending of money using online means. We will see more about the electronic fund transfer process later. 

Electronic money transfers may be instant or take hours to days, depending on the transfer method. For example, PayPal to PayPal transfer happens instantly irrespective of where you send money. The same applies to Payoneer to Payoneer transfer. The transfer process eliminates the time taken when transferring money at branches where you have to fill out various forms to authorize the transfer. 

Usually, the commonly used mediums to transfer money electronically are banks. Banks allow handling large amounts of money and are safer than other platforms. Since you can transfer money via mobile wallets, things are now easier. The first thing to send money via electronic means or any other using a bank account is by opening an account online or at a branch. 

What is Electronic Fund Transfer (EFT)?

I have just highlighted what an electronic funds transfer is somewhere up. However, I am sure you are interested in knowing more about the process. For your understanding, EFT is also known as direct deposit. Most people know about direct deposit, not knowing that EFT and direct deposit are just the same. 

Without wasting much time, let me discuss in detail what EFT is. Electronic Fund Transfer is a digital movement of money from one bank account to another whereby the transfers take place without the intervention of the bank employees. The transactions do not require paper documents as it is with manual money transfers, where you have to fill out transfer forms. 

EFT method of money transfer is an accessible, simple, and direct funds transfer method. Businesses are increasing the usage of EFT transfers to accept payments and procurement. Above all, the method is cheap.

Even though we have other methods such as ACH that give the EFT method stiff competition, the process is the best. ACH transfers take days to complete, and if you want to accept ACH payments instantly, you have to part with high fees. 

How does the EFT process happen?

electronic fund transfer process

Another thing that is very important to know is how the process goes about. We have seen what an Electronic Money Transfer is. But how can you carry it out? The transfer usually has two parties: the sender and the receiver of funds. I mentioned earlier that the bank’s employees are not involved in the process. 

Once you, as the sender, initiate the transfer, there are a series of digital network requests using the internet or a payment terminal to your bank as the sender and then to the receiver’s bank. Remember that a sender can be an employer, business, government agency, or non-governmental organization. Even individual people can transfer funds via direct deposit when paying their bills such as water, electricity, internet, etc. 

How is EFT different from ACH?

Since you know that EFT is simply a direct deposit, how different is the transfer method from ACH? For your understanding, ACH means Automated Clearing House. The ACH is a network of money transfers whereby funds must pass through a third-party platform, the ACH, for processing and additional security. The funds from the transferring bank have to stop at the Automated Clearing House for one or two days before proceeding to the receiving bank. 

On the other hand, EFT involves the two institutions directly. Funds do not have to go through a third party for clearing. Remember that I talked about EFT as the direct deposit. Sometimes financial experts use the term to refer to all types of electronic money transfers. You must note that both EFT and ACH require you to transfer money using the routing number and account number

What are the types of EFT payments?

There are various types of EFT payments, and it is essential you know them to decide the most appropriate for your case. They include the following. 

i) Electronic Checks

You can request an electronic check to pay for goods and services instead of traditional checks. An electronic check allows you to pay over the internet or other online payment and is meant to operate like the traditional paper check. 

ii) Card Transactions

When you make a payment online or at a physical branch with a payment card, that is a form of Electronic Funds Transfer. Money from your account enters the merchant account electronically. When paying online, you only need to provide the card details to the merchant, who then requests payment from your bank on your behalf. You can tap or swipe to pay at a physical store. The card reader transmits the information about the payment to the control centers that facilitate deductions of the right amounts. 

iii) Direct deposit

Earlier, I mentioned Direct Deposit as being the same as EFT. We can also term it as one of the types of EFT whereby employers and others can move funds to other bank accounts using the routing and account numbers of the receiving account.  

iv) Phone payments

The transfer involves sending payments via phone call. The sender gives information about their payment cards, such as debit cards, credit cards, or prepaid cards, to the recipient. Once you provide the details, the concerned institution completes the next process. 

v) ATM Transactions

ATM transactions are forms of EFTs since you should request your bank, allowing you to withdraw the amount of money in question. They send money electronically for you to get it via the ATM slot. 

What is the importance of Electronic Fund Transfer?

The benefits of EFT transfers are many. First of all, the transfers are fast and reliable, and they do not require a lot of work for the sending or receiving banks. Everything is automated so that there is not much time wasted when processing such payments.

Furthermore, Electronic Funds Transfer is cheaper to undertake than traditional checks or money orders that require a lot of printing. Things happen online, and thus there is less to spend when facilitating the transfer. 

Another importance of using EFT transfers is the low chances of errors when making the transfers. That is contrary to transfers involving human intervention, as it is easy to make some mistakes. Above all, EFTs are secure since you only have to use secure internet connections and the funds move directly to the receiving account. A check may be lost and thus leading to a loss of money if someone deposits or cashes it out. Open checks allow anyone to use them.

Can you use EFTs for international transfers?

Electronic Funds Transfers apply for both domestic and international transfers. When transferring money from your bank account to another account within your bank, you have to send money with a checking account number. However, when sending money from one bank to the other, you must include the receiving bank’s routing number. 

EFTs happen internationally, and you can transfer money to other countries worldwide. You may need more information than you require for domestic transfers. The importance of sending money internationally is to help businesses make purchases from other countries and make payments to people across the borders. Wire transfers are examples of international EFT transfers. 

Is it safe to use Electronic Funds transfers?

Electronic Funds Transfer is a safe method and poses lesser risks since everything is automatic. Once you initiate the transfer, the funds go straight to the target account. Money transfers options such as checks and money orders are not entirely safe because the papers may get lost while delivering. 

Even though wire transfers are a bit insecure, the issue comes when you complete a transaction and realize later that you had provided the wrong details. The transfers are usually instant, and you may not reverse the funds. 

Can I use EFT to send money across payment cards?

Payment cards refer to credit, debit, and prepaid cards. You can use EFT to transfer money from one debit card to another debit card. Therefore it is not just about bank-to-bank transfers. However, to transfer money from one debit card to another, you should transfer money using the banks or credit unions’ accounts that link to the cards. You should make a wire or ACH transfer, and the funds will reflect in the target debit card account.

One thing you should have in your mind is that debit cards allow you to access money from your checking account. When you add money to your account, the funds are also available on your debit card. 

Bottom line

Electronic Funds Transfer is a digital money transfer method from one bank to another. It is usually a safe way to move money from one bank to the other than the traditional way of sending money, such as checks and money orders. The transfer involves less human intervention since it is mainly automated. ACH, Wire, phone transfers, and card transactions are some examples of EFT transfers.

Posted by Spencer Tierney
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Spencer Tierney is a writer and expert on certificates of deposits at transfermone.com. His work has been featured by USA Today, MSN, SF Gate, the Los Angeles Times, NerdWallet and more. He earned a bachelor’s degree in English at UC Berkeley.