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EFT

Electronic Funds Transfer (EFT) refers to the movement of money between bank accounts through electronic systems, without the direct involvement of paper instruments (like checks) or manual processes (like cash handling). EFT is an umbrella term that encompasses multiple electronic payment methods, including wires, ACH, direct deposits, debit/credit card transactions, online banking transfers, and point-of-sale (POS) payments. The goal of EFT is to provide fast, reliable, and secure transfers of funds domestically and internationally.
 

Core Mechanism
EFT operates by transmitting payment instructions electronically from one financial institution to another over secure networks. These instructions may pass through:

  1. Bank-to-bank networks (e.g., Fedwire, CHIPS, SWIFT).

  2. Clearing houses (e.g., ACH in the U.S., EFTPOS in Canada, SEPA in Europe).

  3. Card networks (Visa, Mastercard, Interac).
     

The receiving financial institution processes the request and credits/debits the intended account. Settlement occurs either in real-time (RTGS) or batch mode depending on the EFT system in use.

Types of EFT Payments

  • Wire Transfers: High-value, time-critical payments using networks like SWIFT, Fedwire, or CHIPS.

  • ACH Transfers: Low-cost, batch-processed payments for payroll, bills, and recurring transactions.

  • Direct Deposits: Employers or government agencies electronically deposit wages, benefits, or refunds into accounts.

  • Debit/Credit Card Payments: Purchases made through card networks where funds move electronically from payer to payee.

  • ATM Transactions: Cash withdrawals, deposits, and balance inquiries processed via electronic banking systems.

  • Point-of-Sale (POS) Payments: Retail or merchant transactions where EFTPOS (Electronic Funds Transfer at Point of Sale) systems authorize and settle payments.

  • Online/Mobile Banking Transfers: Peer-to-peer (P2P) payments, online bill pay, and interbank transfers.

  • Preauthorized Debits: Businesses pull funds directly from customer accounts (e.g., utility bills, loan payments).
     

Key Features

  • Electronic Processing: No physical checks or cash are exchanged.

  • Speed: Varies—instant for card payments and some wires; same-day or multi-day for ACH and batch EFT.

  • Security: Encrypted networks and authentication protocols protect transactions.

  • Accessibility: Enables 24/7 banking through ATMs, online platforms, and mobile apps.

  • Versatility: Supports a wide range of transaction types (P2P, B2B, G2C, C2B).
     

Use Cases

  • Payroll and government disbursements (Social Security, pensions).

  • Vendor/supplier settlements in corporate finance.

  • Consumer retail transactions at POS terminals.

  • Cross-border remittances using wire or card rails.

  • Loan repayments and mortgage payments.

  • P2P transfers through fintech apps linked to bank accounts.
     

Advantages

  • Efficiency: Reduces reliance on paper-based instruments.

  • Lower Cost: Cheaper than checks and often more cost-effective than wires.

  • Convenience: Supports recurring and scheduled payments.

  • Global Reach: Enables domestic and cross-border fund flows.

  • Auditability: Provides electronic records that aid reconciliation and reporting.
     

Risks & Considerations

  • Fraud Exposure: Phishing, account takeover, and unauthorized EFTs are concerns.

  • Settlement Risk: Some EFT systems operate in batch, delaying finality.

  • Regulatory Compliance: Must comply with AML, KYC, OFAC, and local regulations.

  • Fees: While cheaper than wires, some EFT systems carry transaction or service charges.

  • Error Handling: Incorrect account numbers or details can delay or misroute payments.
     

EFT in Different Jurisdictions

  • Canada: EFT often refers specifically to interbank transfers processed by Payments Canada; Interac is widely used for P2P and POS EFT.

  • United States: ACH and Fedwire are the primary EFT systems.

  • Europe: SEPA (Single Euro Payments Area) supports pan-European EFT.

  • Global: SWIFT acts as a communication channel for cross-border EFT instructions.
     

Trends & Evolution

  • ISO 20022 Adoption: Enhances data richness, reconciliation, and compliance in EFT.

  • Real-Time Payments: RTP and instant payment systems (e.g., FedNow in the U.S., UPI in India, SEPA Instant in Europe) are reshaping EFT expectations.

  • Fintech Integration: Digital wallets, neobanks, and P2P apps increasingly leverage EFT rails behind the scenes.

  • Contactless & Mobile Growth: POS EFT is shifting toward mobile devices, NFC, and tokenized transactions.

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