In today’s global economy, Electronic Funds Transfer (EFT) payments are becoming increasingly common. Because of this, it is important to know what they are and how the process works. To learn more about EFTs and the different types of payments, read below.
What is an EFT payment?
An electronic funds transfer (EFT), or direct deposit, is a digital movement of money from one bank account to another. These transfers take place independently from bank employees. As a digital transaction, there is no need for paper documents. EFT has become a predominant method of money transfer since it is a simple, accessible, and direct method of payment or transfer of funds. As businesses increase their usage of EFT, paper checks become obsolete due to expense, slower expedition, and overall effort.
What is the Electronic Fund Transfer Process?
An EFT transfer is usually very straightforward. There are two parties: the sender of funds, and the receiver of funds. Once the sender initiates the transfer, the request channels through a series of digital networks originating from either the internet or a payment terminal to the sender’s bank, and then to the receiver’s bank. Senders can be anyone from an employer, to a business, to an individual paying a vendor for a service such as electricity. Likewise, recipients can be entities like employees, goods suppliers, retailers, and utility companies. Most payments are cleared, that is complete, within a couple of days.
Types of EFT Payments
FT payment methods vary. Every method of EFT offers ease and fast delivery, which is why it’s become so popular. While EFT is preferred worldwide, it’s important to know the various ways one can take part in EFT payments. Here are the most common types of EFT:
In this payment, a digital check is generated upon the payer’s authorization. E-checks are commonly used for vendor payments.
With direct deposit, funds are automatically deposited into an account with little to no paperwork. This method is popular among employees. While the automatic deposit requires almost no work on a regular basis, the deposit needs to be set up, and this requires bank account information for the recipient, among other potential information for entry.
This is a casual transaction, and it occurs during a phone call. Usually, the payee will supply their information, typically a card number, to the recipient over the phone. The transaction will happen on the recipient’s line. The payee does very little after verbal authorization. This is common for utility payments.
A global convenience, ATM transactions occur at electronic kiosks found throughout cities and banks all over the world. In this case, a person is withdrawing cash from their bank account by inserting their debit card into a machine, which will transmit information to the bank, and then process the request to dispense money. It is an instant transaction.
During the point of sale phase of a transaction, a credit card or debit card is the most commonly used form of payment around the world, replacing cash. This can be in person or online and entails the swipe, dip, or entry of a card, during which account information is electronically received and a payment withdrawal is approved, then the payment is scheduled and processed within a day or two.
The internet version of tapping, swiping, or inserting a card involves manual entry into a point of sale field, followed by clicking a payment button. This process does the same as the above, processing approval for payment, and then transferring funds for payment within a couple of days.
What’s the Difference Between an EFT and an ACH?
ACH stands for Automated Clearing House. The ACH is a network of financial institutions whose intent is to provide security in the transfer of funds. So in an ACH transaction, the request will stop through the ACH between the initiation and the bank itself. That means that ACH transactions add an extra day or two, but if speed is less important than security, this is a desirable option.
EFT is a blanket term for all digital transactions, and an ACH is just one type of EFT payment. As noted above, there are many types of electronic transfers, so it’s up to the business and the consumer to decide what kind of EFT is best for their needs.
Are Electronic Fund Transfers Safe?
One of the best features of the EFT is its security. While transmitting over the internet always involves an element of risk, EFT is generally considered a safer method of payment than a traditional paper check. Some types of EFT, like the ACH, are more secure than others. The best way to ensure a tamper-free EFT is to use companies that you know and trust or that come from a reliable source in the case of a recommendation. Using third-party entities, like EBANX, can help make the right decisions when it comes to navigating EFT payments for your own business.
What are the Benefits of Electronic Fund Transfer?
When it comes to payment, EFT has a lot to offer. All types of EFT are fast and reliable, and they don’t require much work on either end of the transaction. This means EFT is a cost-effective solution so businesses save money. The low effort aspect is a financial benefit when it comes to time spent, but it also means employees can concentrate on larger issues since the details are taken care of through electronic automation.
The use of paper checks requires check printing and postage, both of which are extra costs. Personnel interaction is needed for these tasks, which means less gets done, or additional employees are necessary. A risk of mailing checks involves potential mail loss or even interception of checks. Stop payment is a necessary expense in either of these cases. All of this is gone with an EFT.
When using cash, an in-person transaction is required. There’s a risk of human error for counting, risk of fraudulent bills, and extra expense and effort for an employee to manage the money from transaction to filling the safe, to in-person deposit at the bank. Again, these risks are totally gone with an EFT solution, like a credit card.
EFT’s established safety is one of the best benefits. Besides cost, a secure business establishes entities as trustworthy, resulting in repeat sales and long-term relationships.
How Do Electronic Funds Transfers Work for International Payments?
In a global e-commerce world, EFT makes businesses thrive. From anywhere in the world, EFT technology enables businesses to reach the entire population. The same ease and cost-effective nature exist with international payments, and businesses rely on this convenience. Indeed, EFT is a window into a worldwide business, giving the same opportunities to small tech start-ups as large corporations. Fintech has greatly benefited from EFT, especially in Latin America.
In essence, international payments work the same way that local EFT payments do, however, some countries have rules for high payments. Foreign transaction fees and exchange rates will apply to varying amounts, so it’s important to know that information to keep books in order. Overall, international payments result in greater income potential for any business around the world.