An Electronic Funds Transfer, or EFT, is the electronic transferring of money from one bank account to another, often called electronic banking, direct deposit, bank wire transfer…The list goes on. It can get confusing to know what difference, if any, exists between any of these payment types.
EFT is an incredibly broad term used to describe any electronic transfer of money that is not initiated directly by a bank, like direct deposit transactions, automatic bill pay, and ATM withdrawals. Think of payroll processing or a reoccurring membership fee as examples of EFT, which are often initiated by the payee but then automatically transferred without the direct intervention of the bank.
Many companies rely on EFT to directly deposit paychecks into employee’s accounts, and many people use EFT to pay utility or other bills. There are a variety of services provided by EFT, which basically includes any online transaction or money transfer that exists.
Why Use EFT?
EFT payments are more secure than credit card payments or paper checks since recurring payment into a bank account requires account verification. EFT is more reliable than paper checks, which can get lost or stolen in transit, and is considered more environmentally friendly.
Electronic funds transferring has allowed banks to adopt a digital banking system rather than a paper one, which is more efficient, reliable, and secure. Transferring money online is easy with EFT, leading to a better market for businesses selling merchandise, services, and other products online. On the other side of business-to-business payments, vendors or clients can send payments using an e-billing method, which sends payment information to your business electronically. Processing electronic payments through e billing is often easier on your accounts payable department, because it allows them to quickly track digital data, update audit records, and verify payment information.
Electronic Funds Transfer is a term that is often used interchangeably with ACH transfers, as described by Forte’s payment basics article. Both of these transactions occur by transferring money from one bank account to another. Credit card payments, automatic payments, and direct deposit transfers are all considered EFT payments. Understanding this will help in the future when you see the term EFT used in conjunction with any other form of online payment.