Electronic funds transfer or EFT payments allow businesses and individuals to pay and collect money electronically. EFT is safe, efficient, fast, and more affordable than using paper checks.
Understanding how EFT payments work is crucial to using these payments successfully. In this article, you will learn what EFT payments are, how they work, and the benefits of EFT payments.
What Is An EFT Payment?
Alt Text: A woman making an EFT payment on her phone with a credit card.
An EFT is an electronic transfer of money from one bank account to another bank account. An EFT can happen between any two accounts.
EFT payment is an umbrella term to refer to a variety of electronic payment methods, including ACH payments, direct debit payments, etc.
There are various types of EFT payments, including:
- ACH Payments
ACH payments are processed through the Automated Clearing House through the ACH network instead of being processed through a traditional card network.
- Credit Or Debit Card Payments
A credit card or debit card payment is a type of EFT payment used for customers when paying a business for a product or service. This can also be used to move money from business bank accounts or be used to pay bills.
- EChecks
EChecks are electronic check payments that work similarly to a paper check but are faster and more convenient. To use an Echeck, you need a routing number and bank account number.
- Wire Transfers
Wire transfers are used to transfer large amounts of money from one account to another. This type of payment is often used by a consumer or business making a big purchase.
- EWallets And Digital Wallets
E-Wallets and digital wallets are growing in popularity in recent years. Digital wallets provide a payment alternative to credit and debit cards and are often instant.
- Peer To Peer Payments
Peer-to-peer payments such as PayPal and Venmo are being used to make payments by consumers where possible. Peer-to-peer payments usually rely on ACH and wire transfers and can be instantaneous.
How Does EFT Payment Work?
The EFT payment process is fairly straightforward. There is a sender and receiver of money.
Once the sender initiates a transfer, the request goes through various digital networks to the sender’s bank and then the receiver’s bank.
A sender can be anyone, such as an individual paying a business for a good or service, an employer to a business, etc. A recipient can also be anyone from an employee to a retailer to a utility company.
EFT payments are often clear in a couple of days. The amount of time needed to process an
EFT payment depends on:
- The type of payment
- Your EFT provider
- When you submit the payment
An EFT payment may take between one to four days. EFT payments are typically in process on business days.
Benefits Of EFT Payment
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Electronic funds transfers are becoming more popular as a payment method. There are several advantages of using EFTs for payment, including:
- Speed: EFTs are generally faster than sending cash or checks through the mail. EFTs often also go through faster than cash or checks.
- Flexibility: Most forms of EFT can be done online. A visit doesn’t need to be made to a store or bank to withdraw money or send money.
- Automation: EFTs can be programmed to happen at specific intervals. This allows recurring payments without having to write checks or worry about payment deadlines.
- Cost: When transactions are made by cash or check, there are several expenses, including paying for postage, paying to print checks or bills, etc. EFTs avoid these fees and are a more cost-effective way to make payments.
- Human Error: Cash and check transactions are prone to human errors. Someone can miscount or miscalculate the amount of money to transfer, or they can lose track of the check or cash in transit. EFTs lessen the risk of human error because they are often handled by computers.
- Security: EFTs require more verification because money is being moved electronically, meaning they have less risk of theft or counterfeiting than cash or checks.
- Short Payment: EFTs are typically faster to clear than credit cards or debit cards, which allows you to receive payment faster.
- Reduced Fraud: EFT transactions are encrypted and prevent security breaches. Electronic payments are also easier to trace.
- More Payment Options: EFT payments create more options for customers to pay. EFT payments can make it easier to make online payments and avoid fees from other forms of payments.
- Increased Revenue: EFT payments increase revenue by allowing customers to use the payment method they prefer. This not only increases customer satisfaction but can also increase cash flow.
- Green Alternative: EFT payments are a more environmentally friendly way to pay as opposed to paper checks or cash. With an EFT payment, your funds are transferred directly from one bank to another, and you don’t create paper waste and other waste associated with cash or checks.
- Recurring Payments: EFT payments are good for both one-time and recurring payments. EFT payments can be set up directly for funds to come out of a bank account at regular intervals for a monthly subscription or recurring payment.
EFT Vs ACH: What’s The Difference?
Alt text: The word ACH is written on a chalkboard and underlined with a hand holding chalk beneath it.
The key difference between EFT and ACH transactions is that EFT is an overall term for all digital payments, including e-wallets, Echecks, ATM transactions, etc. ACH refers to transactions made through the Automated Clearing House.
An ACH payment occurs when money is moved from one bank account to another and is often referred to as a direct deposit. ACH transfers are a type of EFT transaction.
While ACH payments are EFT payments, not all EFT transfers use the ACH system. Another difference between the two is timing and cost. ACH payments are sent in batches, and some EFT transactions, such as wire transfers, are individual, which can create higher fees.
EFT Payment Security: Is It Safe?
In general, EFTs are safe. They are especially more secure than paper checks, but it doesn’t mean they are completely without risk.
Some EFT payments can be instant, which can be beneficial, but if you send money to the wrong person, it will be difficult to get it back.
EFTs do have certain protections under the Electronic Fund Transfer Act, which decides the limits of customer liability and the error resolution process.
There isn’t as much protection with an EFT as credit cards. The level of protection that you receive for an EFT depends on how fast you catch fraud and notify your bank and how the money was taken.
If you experience an unauthorized EFT because someone stole your card and accessed your account, there is only a limited time window for reporting it.
EFTs also come with the risk of transactions that happen in error. For example, if a company accidentally overcharges you, under the EFTA, consumers do have some rights to get money back from an EFT error that wasn’t their fault, but this isn’t always the case.
Are EFTs Worth It?
EFTs can be a very beneficial form of payment in many ways. EFTs are reliable, flexible, secure, and convenient and offer faster processing than traditional methods. EFTs can also help individuals to save money on transactions.
Bankful’s EFT payment processing is ideal for a business looking to increase their profits by accepting EFT payments. Bankful offers secure payment processing in a variety of formats, including credit cards, e-checks, cryptocurrency and more.
Bankful also offers fraud protection, helpful integrations, and solutions experts for when any
issues arise.
Check out Bankful today and start accepting EFT payments.