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EFT Meaning: What is an Electronic Funds Transfer? | Tipalti

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 
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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.

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)

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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.

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

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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)

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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.

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 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.

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