EFT Payments: Understanding Electronic Fund Transfers

Table of Contents

1. Introduction to EFT Payments
2. Examples of EFT
3. How EFT Payments Work
4. How long does an EFT payment take?
5. Advantages of EFT Payments
6. EFT vs. ACH
7. EFT vs. Bank Transfer
8. Why EFT Payments Matter for Businesses

Key Takeaways

• EFT (Electronic Funds Transfer) refers to digital payment transactions, including direct deposits, peer-to-peer payments, and card transactions.
• An EFT example is direct deposit, where funds are transferred electronically into an employee’s account.
• EFT payments are automated and processed digitally between the payer and payee.
• Common EFT types include ACH transfers, debit/credit transactions, and wire transfers.
• Advantages of EFT: increased security, faster transactions, recurring payment options, and flexibility for remote payments.
• EFT and ACH are different; ACH is a specific type of EFT.
• EFT payments enhance cash flow, streamline processes, and reduce operational inefficiencies for businesses.
  
  

What are EFT Payments?

EFT stands for “electronic fund transfer.” It’s an overarching term for all digital payments and refers to the electronic transfer of money among banks, businesses, and individuals. EFT payments encapsulate many of the most common types of digital payments: peer-to-peer payments, eChecks, direct deposit, credit and debit card payments, and ATM transactions.

Any time you’re moving money from your checking account to your savings account, sending money to your friend via PayPal, or swiping your debit card at your local coffee shop, you’re using underlying EFT technology to make the digital transaction possible.

What Is an Example of an EFT?

An example of an EFT is when your company uses direct deposit to send your paycheck into your bank account. Instead of giving you a physical check, the employer transfers the funds electronically from their bank to the employee’s account. This method is efficient, secure, and eliminates the need for manual deposits. Other common examples of EFT include online bill payments, ACH transfers, and debit card transactions.

How do EFT Payments Work, and how are EFT Payments Used?

There are two different parties involved in every EFT payment:

• The payer (the sender of the money)
• The payee (the receiver of the money)

EFT payments can be processed without the direct involvement of bank employees because they are initiated through digital channels with the help of algorithms. To send a payment via EFT technology, the payer must initiate the transfer through an Internet payment terminal. Then, the payer’s bank sends a request to the payee’s bank, which will proceed to verify the account details and receive the payment.

EFT payments are used to support any digital transaction, in-store and online, for many different kinds of C2C, C2B, and B2B payments. EFT transactions include, but are not limited to, the following:

• In-app purchases
• Debit and credit card transactions
• ATM transactions
• Peer-to-peer payments
• ACH and wire transfers
• Direct deposits
• Phone payments
  
  

Here are 2 in-depth examples of EFT payments at work:

If your business pays a contractor for her work via ACH or wire transfer, you act as the sender, and the contractor acts as the receiver. When the contractor signs on to work with your company, she will have provided her bank and routing number and any other relevant information needed to receive the payment. Your company must input her banking information into its payroll system to pay her and initiate the funds transfer. This will debit your company’s bank account and credit the contractor’s account – all thanks to underlying EFT technology.

Another example of a digital transaction made possible by EFT technology is a debit or credit card transaction. If you are taking your finance organization out to a team dinner and paying for the meal with your company credit card, your server will have to swipe or tap your company card using a payment terminal. This method initiates the electronic transfer of funds which is completed once you sign the bill. This debits your company account and credits the restaurant account, but the charge may take a few days to appear.

How long does an EFT payment take?

An EFT payment usually takes between one to four business days to process. However, factors like bank processing times, weekends and holidays, and transfer types can impact how long the payment will take.

What are the Advantages of EFT Payments?

• Higher security: EFT payments proceed through the Electronic Fund Transfer ACT (EFTA), which gives users legal recourse if they fall victim to unauthorized transactions and lost or stolen debit cards. It also allows banks to place a withdrawal limit on debit cards to protect against fraud. It entitles individuals to compensation if their banks violate any guidelines laid out by the EFTA.
• Speedier transactions: Digital payments supported by EFT technology are much faster than traditional payment methods like paper checks because they eliminate mail float: the time it takes for a check to travel from the payer to the receiver through the postal system. While some forms of EFT-backed payments can take a few days to process (such as ACH), others can be nearly instantaneous.
• Recurring payments: EFT payments can make autopay and payment automation possible, making it easy for both AP and AR teams to send and receive money effortlessly. For businesses that provide monthly services, automatic recurring payments can change the game by providing predictable payment dates, a decrease in DSO, and continuous cash flow.
• Increased flexibility: EFT technology makes it possible to do business anywhere, anytime. Individuals and companies can send payments remotely to payees who live worldwide at any hour of the day.
  
  

What’s the Difference Between EFT and ACH?

EFT and ACH are often confused, but ACH is just one type of EFT payment, and EFT technology supports a wide array of digital payments. ACH stands for Automated Clearing House, the official electronic network that connects over 10,000 banks and financial institutions in the US. ACH payments are run by the National Automated Clearing House Association (NACHA) and include different payment categories such as direct deposits, peer-to-peer payments, bill payments initiated by e-commerce platforms, and ACH payments initiated by paper checks. ACH payments are supported by EFT technology, but EFT technology also encompasses many more payment types aside from ACH payments alone.

Is EFT the Same as a Bank Transfer?

EFT (Electronic Funds Transfer) and bank transfers sound similar, but there's more to it. EFT is a broad term that covers any kind of digital transaction where money moves from one account to another. This includes things like direct deposits, online bill payments, ATM withdrawals, and wire transfers. A bank transfer, however, is a specific type of EFT where money is transferred between bank accounts—either within the same bank or between different ones. So, while all bank transfers are technically EFTs, not every EFT is a bank transfer.

Why do EFT Payments Matter for your Business?

So, what is an EFT payment method? Remember, EFT refers to any electronic funds transfer and the underlying technology that makes these digital payments possible.

There’s no question that digital payment technology will help bring your business into the future. For finance teams, EFT payment types are essential to improving cash flow predictability and ensuring speedier operations. And, if you choose the right digital payment solution, you can also avoid the exorbitant card fees draining your company’s bottom line.

If you want to learn more about how digital payments can help take your finance organization to the next level, check out our free ebook.

Plus, Paystand recently rolled out support for Canadian EFT. Learn more about saving on Canadian payments.