Electronic funds transfer (EFT) has a broad definition that includes more than online ACH bank transfers and wire transfers. We define the meaning of EFT in business, economics, and online banking, then list and describe types of electronic funds transfers.
Electronic Funds Transfer (EFT) Meaning
An electronic funds transfer (EFT) is a digital transfer of cash through an online payment system. An EFT can be performed within the same bank, or between banks, and typically uses payment systems such as the Automated Clearing House for ACH payments, Fedwire or SWIFT for wire transfers, or credit card and debit card networks.
EFTs are becoming increasingly common in B2B payments as many businesses shift from traditional paper checks towards more efficient and lower-cost ePayment methods such as ACH. The EFT can happen between accounts within one bank or between accounts across multiple banks. Other transaction types that are considered EFT include direct deposit, ATMs, virtual cards, e-Checks (used globally), peer-to-peer payments, and personal computer banking.
As traditional paper processes become digitized, computerized systems like EFT transactions will continue to grow and evolve. Activities such as utility bill payments have traditionally been paper-intensive, requiring physical statements, invoices, checks, and receipts. These processes now primarily take place over digital networks as ACH transactions. This change is shifting the banking world’s paradigm.
What are Types of Electronic Funds Transfer (EFT)?
Types of EFT (electronic funds transfer) include:
- ACH payment or ACH direct deposits
- Global ACH (like SEPA payments in the EU)
- Wire transfers
- eCommerce transactions
- Point of sale (POS) transactions
- Credit card or debit card transactions
- Peer-to-peer payments
- Phone-initiated funds transfers, and
- ATM (automated teller machine) transactions.
ACH as Electronic Funds Transfer (EFT)
ACH is one type of electronic funds transfer. ACH credits and ACH debits for online bank transfers include direct deposits and eChecks (electronic checks) for one-time payments or automated recurring bill payments for bill pay. ACH transactions are sent through the Automated Clearing House network (ACH network) as bank transfers between member financial institutions like banks and credit unions.
A United States-based ACH transaction uses bank account information, including the bank routing number (ABA number) and bank account number for the payer and payee and their originating bank and receiving bank. ACH transactions can be made using Same Day ACH or Next Day ACH, where day means business day.
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Global ACH as Electronic Funds Transfer (EFT)
International ACH electronic payments may be loosely called global ACH payments if they use a similar network to the ACH network to make electronic payments. In the European Union (EU), electronic SEPA (Single Area Euro Payments) using debit and credit transfers are a type of global ACH payment that are EFT payments. SEPA is useful for cross-border payments.
Wire Transfer as Electronic Funds Transfer (EFT)
Wire transfers are domestic or international electronic funds transfers to a recipient’s bank account made through the Fedwire Funds Service (Federal Reserve Banks) or Clearing House Interbank Payments System (CHIPS) in the U.S. or the SWIFT network or IBAN internationally and for cross-border payment transactions for the transfer of money.
eCommerce and Point of Sale Retail Transactions as EFT
Online eCommerce and electronic point of sale (POS) transactions made from physical stores are types of electronic fund transfer (EFT)when the customer pays the merchant via online bank account transactions, debit cards, or credit cards using a payment processor. Cash transactions on-premises paid using paper and coin currency like dollar bills and quarters are not considered EFT.
Credit Card or Debit Card Transactions Always EFT
Credit card and debit card transactions are always an EFT (electronic funds transfer) transaction between the payer and the payee. The purchase price, including any sales tax, is electronically charged to the customer on a credit card or to their bank account using a debit card. The funds are electronically transferred in batches to a merchant’s bank account.
Peer to Peer Payments as Electronic Funds Transfer (EFT)
Peer-to-peer payments are electronic funds transfers (EFTs) made through mobile apps or the Internet to transfer money electronically between them. Examples of peer-to-peer payment systems include PayPal, Venmo, Zelle, Apple Cash, and eWallet apps where both parties (the payer and payee receiver) have accounts. EFTs are electronic money (E-money) transactions.
Phone-initiated Fund Transfer as EFT (Electronic Funds Transfer)
Many companies and government entities include an optional payment method by phone using a bank transfer (ACH), credit card, or debit card payment. These payments, which are processed electronically by a service provider based on phone instructions, are considered electronic funds transfers (EFTs).
Bank ATM (Automated Teller Machine) as Electronics Fund Transfer (EFT)
Bank ATM transactions, to electronically transfer money between bank accounts, deposit funds, or make withdrawals of money from a bank account as cash, are one kind of electronic funds transfer (EFT) that uses online banking. ATM transactions are initiated using a bank-issued debit card and password.
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How Does EFT (Electronics Fund Transfer) Work?
EFT payment works using a different electronic funds transfer process, depending on the type of EFT payment used for the transfer of funds. EFT is always an online or electronic payment through a payment network or system.
What are 3 Examples of EFT?
3 examples of EFT (electronic funds transfer) are:
- Recurring bill pay from your bank account
- Direct deposit for employee payroll
- Wire transfers
Recurring bill pay from your bank account
For example, your company may authorize that the bank automatically pays its recurring software subscription bills from its checking account when due on a monthly basis. The form of EFT payment will be ACH.
Consumers also choose to use recurring bill pay from a bank account as an ACH Direct Debit to pay recurring mobile phone service bills, streaming services, and utility bills.
For these examples, the customer paying bills could instead select recurring credit card transactions as the payment method, which is another type of electronic funds transfer (EFT).
Direct Deposit for employee payroll
Direct Deposit of payroll in an employee’s bank account is another type of EFT, using ACH.
Wire transfers
Wire transfers are used as a type of EFT to transfer funds via the Fedwire or SWIFT network. Both domestic and international wire transfers usually have higher fees than ACH. An international wire transfer includes layers of fees that include originating bank fees, receiving bank fees, and intermediary bank fees. Some banks waive domestic incoming wire transfer fees.
How Long Does an EFT Take?
The time for an electronic funds transfer to be completed, including the receipt of funds by the payee, depends on the type of EFT.
For example, some EFTs going through peer-to-peer networks can be completed immediately. ACH transactions in the U.S. are completed the same business day or the next business day. Domestic wire transfers can be completed within 24 hours in the U.S. International wire transfers can take three to five days.
What is the Electronic Funds Transfer Act (EFTA)?
The Electronic Funds Transfer Act (EFTA) is U.S. legislation enacted in 1978 to protect individual consumers in many types of electronic funds transactions and define the roles and responsibilities of all involved parties. The Federal Reserve Board implements EFTA through Regulation E.
FAQs
The following FAQs cover questions and answers relating to electronic funds transfer (EFT) made via computer or mobile transactions in finance.
What is an e-Check (Electronic Check)?
e-Checks are electronic checks used as a type of payment instead of paper checks to make ACH payments, a category of electronic fund transfer (EFT), between bank accounts.
What are the Four Major Credit Card Networks Used for EFTs?
Four major credit card networks for online payment processing are MasterCard, VISA, American Express (Amex), and Discover. Credit card transactions are always considered EFTs (electronic funds transfers).
Are ACH Transfers Made Outside the U.S.?
No. ACH transactions, a type of electronic funds transfer (EFT), are domestic bank account to bank account transfers made by Nacha member financial institutions within the United States using the ACH network.
Which Types of Bank Accounts can be Used for an EFT?
An EFT transaction (electronic funds transfer) can be made using a checking account or a deposit account like a savings account.
Is there a Difference Between ACH and EFT?
Comparing EFT vs ACH, ACH is one type of EFT(electronic funds transfer). EFT includes many types of electronic funds transfers, including ACH, SEPA payments in the EU, wire transfers, eCommerce and retail point of sale transactions, credit and debit card payments, online peer-to-peer network payments, phone-initiated payments, and ATM transactions.
What is the Difference Between Electronic Funds Transfer vs Wire Transfer?
Wire transfer is one electronic fund transfer type. In contrast, electronic funds transfer (EFT) includes many kinds of online fund transfers besides wire transfers, including less expensive ACH bank transfers in the United States. Wire transfer is a domestic and global payment method. Compare ACH vs wire transfer.
How Long Does it Take for an Electronic Funds Transfer to Go Through?
The time for an electronic funds transfer to be completed, including the receipt of funds by the payee, depends on the type of EFT.
For example, some EFTs going through peer-to-peer networks can be completed immediately. ACH transactions in the U.S. are completed the same business day or the next business day. Domestic wire transfers can be completed within 24 hours in the U.S. International wire transfers can take three to five days.
Can an EFT be Used for Cryptocurrency Transactions?
Yes. Buyers can purchase cryptocurrency like ether (Ethereum) or Bitcoin online with an EFT (electronic funds transfer) that may be an ACH from a bank account or an approved bank debit card or credit card transaction. Cryptocurrency sellers may receive proceeds with a funds transfer via an EFT transaction.
Service providers handling the crypto purchase and sale transactions may charge service fees and set and apply currency exchange rates between the cryptocurrency and the payment in a currency like the U.S. dollar to determine the total EFT amount.
Rather than buying cryptocurrency through individual transactions, investors may use an ETF (exchange traded fund) for investing. Buying or selling shares in an ETF may be accomplished using an EFT (electronic funds transfer).
What are Electronic Funds Transfer (EFT) Advantages and Disadvantages?
For advantages, electronic fund transfers (EFT) are speedier, more secure, and less expensive (except for international wire transfers) to process than using paper checks and making deposits of funds in person at a bank.
For disadvantages, international wire transfers (a form of EFT) can be expensive to send and receive, with fees from the originating and receiving banks, possibly intermediary bank fees, and miscellaneous fees like investigation fees if the wire transfer is lost. And once sent, funds from an erroneous or fraudster-requested wire transfer can’t be recovered because wire transfers are final.
What are Examples of U.S. Federal Government Entities Using EFT Payments, including ACH?
Examples of federal government entities using ACH payments as a type of electronic funds transfer (EFT) include the U.S. Department of the Treasury and the Social Security Administration (SSA). The U.S. Treasury issues stimulus payments and IRS refunds of tax payments as ACH payments. Social Security benefits and Medicare claim remittances are paid electronically using ACH/EFT transactions.
In Summary
Electronic fund transfers (EFTs) include several types of payment methods, including ACH and global ACH, wire transfer, credit cards and debit cards, peer-to-peer, phone payment transactions, point of sale, eCommerce, and ATM transactions. The amount of time to receive payments and network types for making these EFTs varies.
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