What is an EFT payment
What Is an EFT Payment?
Everything you need to know about electronic funds transfer payments
With new innovations in payment technology, digital and electronic payments have become commonplace for retailers and financial institutions alike. Electronic funds transfer (EFT) payments are a payment method that allows for increased accessibility of funds with quick digital movement of money. Typically, EFT payments can clear quickly (often within a few business days) and provide greater payment options for customers. This article will discuss what EFT payments are, the common types of EFT payments that exist, how they work, if they are safe, and why they are so popular.
Let’s first look at what an EFT payment is.
What is an EFT Payment?
EFT payments are also known as direct deposits. This type of transfer is a digital transaction that occurs without the need for paper checks. Paper checks often require more resource cost, take more time, and require more effort from bank employees. One benefit of EFTs is that these types of transfers can include two accounts at different financial institutions. When discussing the payment process for EFTs, it is important to note that an EFT is an umbrella term that includes other payment methods with electronic transfers; for example, wire transfers or automated clearing houses (ACH).
What are the common types of EFT payments
Many payment types fall within the EFT category. Here are some of the most important to know about:
- ACH transfers. An ACH payment involves an ACH debit being pulled from the payer’s bank account and posted as a debit payment. From there, the money is transferred to the bank account of the payee. On their bank account, this person would see the funds come through as an ACH credit. These types of electronic payments are completed via the ACH network which processes large volumes of credit and debit transactions.
- Direct deposits. This type of electronic transfer is especially common when paying employees at a company. Direct deposits occur when the direct deposit service provider pulls company funds and places them in the correct bank account with the matching banking and account information. Payment amounts for direct deposits correlate directly with established payroll information tied to the employee.
- ATM transactions. Automated teller machines (ATM) allow customers to make withdrawals and deposits as well as other functions like checking account balances and transferring funds internally. Typically, these machines require a pin or identification number to ensure added security before funds are accessed.
- Electronic checks. Electronic checks (e-checks) are modern versions of paper-based checks. They function very similarly, with the major difference being that they are completely electronic. To make a payment with an e-check, you only need your bank routing number and bank account number.
- Wire transfers. Wire transfers are forms of electronic payments that are typically used by businesses to send large amounts of money to vendors, partners, or suppliers for overhead business costs. Wire transfers are also used by individuals who wish to send money to their home country outside of the U.S. This technology allows for money to be sent globally and often instantaneously.
- Card transactions. During the point-of-sale (POS) phase of a transaction, a credit card or debit card is the most commonly used form of payment around the world. This can be in person or online, and entails the swipe, dip, or entry of a card, during which account information is electronically received and a payment withdrawal is approved, then the payment is scheduled and processed within a day or two.
- Telephone payments. This is considered a casual transaction where the payee supplies their information, typically a card number, to the recipient over the phone. Telephone payments are common for paying utility bills.
- Internet transactions. The internet version of tapping, swiping, or inserting a card involves manual entry into a POS field, followed by clicking a payment button. The behind the scenes process is the exact same as in-person transactions, by processing an approval for payment, and then transferring funds for payment within a couple of days.
How do EFT payments work?
As mentioned, some EFT payment processing occurs through the ACH network that connects all financial institutions, banks, and credit unions. Once the proper information is gathered (account number, routing number, recipient, and sender information, etc.), the transaction is triggered. Typically with the ACH network, payments are processed in large groups (or batches) at the end of a given time period. Payment can be cleared usually within a couple of days. For many businesses, this is one of the major benefits of EFT – cost savings. Digital payments can happen quickly and efficiently, saving businesses time and money over the long-run.
It is important to note that not all EFT payments are run through the ACH network. The ACH process is just one type of EFT payment. For example, if utilizing EFT payments through a different means (such as EFT options with a credit card), the payment may not necessarily go through the ACH network or ACH process. As a business, it is important to consider the benefits for each EFT payment and which payment method suits your financial needs the best.
Are EFT payments safe?
As opposed to older systems of payment (like cash), EFT has major benefits when it comes to safety and security. Traditional paper checks or cash are harder to regulate and more difficult to stop if a security issue comes up, especially with fraudulent transactions. However, with EFT, you have more built-in security measures when using EFT online, such as tokenization during purchases or multi-factor authorization, that help ensure that the payments are being made by the authorized account holder. When it comes to direct deposit, your information can remain secure as long as it is stored securely and only with systems that require that information for payroll purposes.
Additionally, with the passing of the Electronic Funds Transfer Act (EFTA), the government can monitor EFT payment compliance throughout the commercial space. This helps promote accurate recordkeeping, security of customer information, and support in solving any errors that may take place during an EFT transaction. If banks or financial institutions don’t comply with laws and standards set by the EFTA, customers can sue for damages and liability concerns. This helps prevent additional regulations within the EFT space.
The best way to ensure safety with electronic payments is to keep your information private, check bank account statements, and maintain regular monitoring of your funds.
Benefits of EFT payments
When it comes to payment, EFT has a lot to offer. All types of EFT are fast and reliable, and they don’t require much work on either end of the transaction. This means EFT is a cost-effective solution, so businesses save money. The low effort aspect is a financial benefit when it comes to time spent, but it also means employees can concentrate on larger issues since the details are taken care of through electronic automation.
The use of paper checks requires check printing and postage, both of which are extra costs. Personnel interaction is needed for these tasks, which means less gets done, or additional employees are necessary. A risk of mailing checks involves potential mail loss, or even interception of checks. Stop payments are a necessary expense in either of these cases. However, all of this is removed with an EFT.
When using cash, an in-person transaction is required. There’s risk of human error for counting, risk of fraudulent bills, and extra expense and effort for an employee to manage the money from transaction to filling the safe, to an in-person deposit at the bank. Again, these risks are totally gone with an EFT solution.
Why are EFT payments so popular?
EFT payments are easy to use and have helped modernize the payment processing experience for many people. Whether using a debit card or other payment method, it is critical to think about how EFT payments can benefit your business and make payment processing seamless. More and more companies are integrating electronic payments, and so understanding the different types can help you make the best decision moving forward.
Are you ready to implement EFT payments at your business? Are you ready to take your payment processing protocols to the next level?
Heartland is ready to help.
Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us.