Electronic Funds Transfer

What is Electronic Funds Transfer (EFT)?

Electronic Funds Transfer (EFT) is a transaction operated through an online network from one bank account to another electronically without the involvement of the bank’s staff.

EFT can be performed between the same banks or between the different banks. This may include several types of payment methods and systems in use. EFT can be initiated by an individual or an entity. It just requires a bank account to operate.

The electronic fund transfer (EFT) may also operate in a peer-to-peer funds transfer. An EFT doesn’t need to operate from one bank to another bank. But these types of transactions may place yet another system in between the banks, known as an intermediary.

Such intermediary has the provision of certain codes and passwords for the users, when the funds are sent from one account or a bank account into that system, the end-user may withdraw the same by providing some details like passport number, code, and password, or else.

The processing of such passwords, PINs, codes, etc. is done by the automated clearinghouse.  With online banking, you may proceed to buy and sell anything provided that you have a bank account or a service provider account.

Direct deposits are the most popular form of electronic funds transfer whereby employees authorize the organization to transfer the funds, like salary, into the individual’s bank account. Or, initiators authorize a financial institution for point-of-sale payments when making purchases physical or online, etc.

There are several forms of EFTs, like auto teller machines (ATMs), peer-to-peer transfers, pay-through phones, mobile banking, electronic checks, etc. EFT payments are paperless in routine practice.

What are the examples of Electronic Funds Transfer (EFT)?

• In businesses, payments are made to suppliers and vendors.
• It is usually used in the case of electronic remittance of government taxes.
• Money transfer through ATM or mobile application

How Electronic Funds Transfer (EFT) can be used?

Electronic Funds Transfer (EFT) can be used to transfer money between the same or different banks via an online network. There are several ways like phone payments, ATM transactions, internet transactions, ACH transactions, and Direct Deposit to transfer funds by the EFT method.

Is EFT electronic funds transfer and electronic banking the same thing?

The EFTs and electronic banking are the two names of one system. It does not require any in-person involvement as the transactions take place electronically.

What are the benefits of electronic funds transfer (EFT)?

The benefits of EFT include the efficiency and security of such transactions. It is less expensive and does not involve a paper transaction. It helps make the transaction simple, convenient, cost-effective, and accessible. When it is your employees’ payday, the funds automated are shown in the bank accounts of the workforce without visiting the payroll branch of the organization or the bank. And those funds can be then transferred into employee's saving accounts.

This is the ease and benefit of electronic funds transfer (EFT). Government benefits such as social security are also transferred via EFT. Another benefit of the EFT is the transactions can be done at any time provided you have an internet connection or access to a computerized network such as paying your grocery or medicine bill at convenience stores at midnight!

How does the electronic fund transfer (EFT) work?

The electronic funds transfer works through the following mechanism:

The transaction through EFT has a certain initiating point. That initiating point is started at any time by anyone. The system mechanism works through ATMs (auto teller machines), computers, telephones, banking programs such as remote banking, or the magnetic tape the black stripe containing the data on the backside of the credit and debit cards. Once initiated, the EFT authorizes a bank to debit a certain amount of money from the initiator’s account to another account for the financial electronic transaction completion.

What is more, for unlocking online account service in the EFT mechanism, the system requires a personal identification number (PIN), passcode, or some verification method. 

The sender or the initiator for an electronic funds transfer can be an individual, a business organization, a payroll department of the employer, a merchandise buying business, a materials management section buying equipment, a procurement division procuring anything of a technical or admin nature, or a friend sending some money to a friend.

And the recipients can be anyone as well. Such as an employee receiving the salary, the products suppliers or service providers, or a business such as utility companies.    

EFT processing is carried out by the automated clearing house (ACH) channels through the Federal Reserve System before it reaches to end-user or the recipient of the funds.

What are the types of electronic funds transfers (EFT)?

There are several types of EFTs. Generally, most electronic transactions come under electronic funds transfer, however, the true EFT transactions are made through the Federal Reserve System. Appended below are the EFT types:

• Direct Deposits
• Auto Teller Machines
• Personal Computer Banking
• Pay by phone system
• Debit and credit card system
• Peer-to-peer payment applications
• Electronic Check Conversion

Direct Deposits

Direct Deposit is a fully automated method in which funds are transferred electronically from one bank account to another bank account without any physical involvement i.e. no paper checks and no need to visit the bank for either party involved.

Direct deposits are made into some banking accounts. This encompasses paycheck, social security, or other benefits. Through this pattern, an employee may preauthorize a bank for some cut in the deposits once the biweekly or monthly salaries are deposited into the bank account. Those cutoffs may be the installments of either your car loan, house financing, insurance packages, retirement policies or that can be your utility bills.

ATMs Automated Teller Machines     

ATMs, or automated teller machines, are another way for electronic funds transfer. ATM transactions allow a user to access the banking accounts at any time and on any day, say even a holiday. ATMs can be used for cash withdrawals, funds transfers between accounts, and money deposits. The process in vogue involves inserting the card into the ATMs and dialing your PIN as your security access code for transactions you need to make.

Personal Computer Banking

While sitting in your restroom or bedroom, if you have a computer and a secure internet connection, you may transact for your cash deposits, buy something online, or transfer initiated of funds from one account to another. This is possible with some apps on a smartphone now. You may also pay your utility bills through personal computer banking systems.

Pay by phone system

This system contains two types within it. One is you call a banking rep and instruct them to transfer a certain amount from your funds to another account for the purpose you need, this happens when you provide your some info to the banking representatives so that they ascertain that is you, along with your calling number identification is saved with the system.

Also, this type of agreement is a preauthorized one by you and you might pay some fees for the system operations or might be a free banking service by the service provider or bank. Another type of pay-by-phone system is now the online banking applications available on smartphones, whereby using that you may make transactions as per your requirements.

Debit and credit card system

The debit card or credit card transactions within EFT are similar but different. They are similar in operative nature in that both do transact for you are purchasing something. The difference is the former cuts money immediately from your account to make sure your account has enough to spend, and the latter takes it on as a credit to be paid by you at a later stage, having specified dates, failing which you will have to pay penalties.

Make sure your debit or credit card information is secured with you and is not misused. Debit or credit card purchase transactions may be made in person, online, or via phone.  

Peer-to-peer payment applications

Paypal, Venmo, and Zelle are the apps that help users send money and receive funds as an EFT. These are peer-to-peer (P2P) funds transfer applications. These apps process funds through ether entering the other person’s email or phone number into the system for identification of the fund’s receiver. Such transactions mostly occur in real time.

The P2P payment systems and applications do not have more restrictions like credit or debit cards, hence the sender is the sole responsible for any misleading transaction that is if an incorrect email or phone number is entered into the system and the funds are transferred into the accounts of an unintended person, it is the fault of the sender. Therefore, this needs more precaution while entering information.   

Electronic Check Conversion

An electronic check conversion works when you pay through your submitting of a physical check into some account to convert the same into electronic payments. For example, if a person deposits some payment through a paper check into an online account of any person or entity.

What can be the disadvantages of an EFT?  

The disadvantages of EFTs can be, among others, mainly two: one may be the fraudulent practice of transferring the funds into the wrong accounts, and another maybe it is not the case of being always on time due to technical issues, if so. Stop payments in case of a wrong and unintended operation takes a few days, and sometimes some days, to reverse the transaction if possible, including the fees for stop payment, etc.  

Are there any Fees involved in the electronic fund EFT?

Yes, there are fees involved in the electronic fund transfer (EFT). Such as ATM service providers or credit card issuers charge you against transactions you do if you do not have an account with them or you are operating at a remote place.  

Another disadvantage of electronic fund transfer may be the security, most of the time security makes it worth an EFT to continue. But, at some stage, if the threat is more of security, the concerns rise more. Hence, you should be careful while operating through an EFT, provided any platform you use.

What Is the Electronic Fund Transfer Act (EFTA)?

The Electronic Fund Transfer Act (EFTA) is a federal law to protect electronic fund transfers (EFTs). The EFTA protects initiators for EFTs, including ATMs, debit or credit cards, and automated withdrawals from the bank. EFTA also has the provision to protect against any errors in the transactions and limit the liability in the consequence of stolen or lost credit or debit cards.

What is the security as per EFTA?

EFTA has the security against EFTs that are carried as computerized transactions using a computer, network, ATMs, bank account, debit card, credit card, point of sale (POS), having an initiator using a phone or computer or a gadget processed through ACH payments, and any preauthorized withdrawal of amount from any account.

What are the benefits of EFTA?

Consumers have benefits of EFTA against the below-mentioned things:

EFTA issues rules for banks, financial institutions, and consumers for challenging any error and correcting that under this act. Also, this act has the provision for the institutions, consumers, and banks to receive limited financial penalties in case of errors. EFTA also defines the outlines for the banks to issue information guidelines to consumers for limiting the liabilities in case of stolen or lost credit or debit cards.

After the EFTA initiation, the paper check is lessened in practice but then again paper checks are considered the hard evidence of the payments. But EFTA, nevertheless, provided the same confidence in EFTs as the consumers had in paper checks. This included the error-checking abilities and challenging those, correcting the errors within 60 60-day window time, and limiting the liabilities on a lost card up to $ 50 only if the lost report is submitted within two business days of the incident of loss.

The EFTA provided consumers with 60 days of reporting a lost card that is if starting from 3 to 59 days after the loss, the lost report is submitted, in this case, the consumer liability is as maximum as up to $ 500, failing which the consumer is not protected from the liability.

Hence, the funds available in the account may be forfeited and the overdraft charges may be levied as well. Whereas the overdraft charges are if a consumer does not have sufficient funds to meet a transaction but the bank allows so.

What is the history of the Electronic Fund Transfer Act (EFTA)?  

The United States Congress passed the Electronic Fund Transaction Act (EFTA) in 1978 responding to a growing number of auto teller machines ATMs and electronic banking. The Federal Reserve Board (FRB) implemented that as a regulation called Regulation E.

While Regulation E protects consumers in terms of the EFTs. Also, Regulation E issued guidelines to the financial service providers for the issuance of debit and credit cards.

Moreover, EFTA provided the parties involved in the EFTs with the rules, regulations, rights, and liabilities in transferring funds electronically.

The EFTA rulemaking body, however, transferred from the Federal Reserve (Fed) to the Consumer Financial Protection Bureau (CFPB) in the year 2011, following the Dodd-Frank Wall Street Reform and Consumer Protection Act.

What are the requirements for the Service Providers as per EFTA?     

EFTA necessitates and requires financial institutions and service providers, and third parties if involved, to declare the following info to the consumers:

• Summary of the liabilities under unauthorized transactions and transfers
• Contact info of the person whom to call in case of unauthorized transaction reporting, procedures of reporting and filing a claim
• Transfer types, limitations, and fees
• Your rights to receive POS point of sale and periodic statements
• Institution’s liability to you
• Circumstances, any special, under which the institution would inform the third party of your details
• Error reporting notice procedure, info requesting way, and the time limit of reporting an error information 

Does EFTA have any withdrawal limits?

Yes, the EFTA has withdrawal limits defined for banks for EFTs along with the time limits. Most of the institutions have set a limit of $200 or $300 withdrawals per day (that is within 24 hours).