Digital disruption has overhauled age-old processes in every industry to be more customer-centric, user-friendly, connected, and, above all, digital. For the financial industry, digital technologies such as electronic transfer funds, or EFT banking, helps banks meet rising consumer expectations and smooth over omnichannel experiences. Today, we’re focusing on the rise of electronic fund transfers (EFTs).
A 2018 trend report from Payments Canada found that while the number and dollar value of payment transactions using cheques and cash continues to decline over the years, debit, credit, and electronic fund transfers (EFTs) have seen an upswing.
EFT banking stands for electronic funds transfer and is something that many of us now take for granted as a new norm. It’s the expectation that your salary was automatically deposited into your bank account. It’s a quick payment of your credit card or monthly bills online. It’s the tap of your debit card when you purchase your groceries or a coffee.
In this blog post we will consider:
- What does EFT mean in banking?
- The types of EFT payments
- The difference between EFT and ACH
- Pros and cons of electronic funds transfer
- How to set up and manage EFT payments
- Innovative EFT banking with VoPay
What does EFT mean in banking?
EFT banking is also known as electronic banking and is a type of online payment. As the name would imply, it’s the digital transfer of funds from one account to another without ever requiring a bank teller to assist or to create a paper trail. It allows businesses to transfer and collect payments between vendors and suppliers quickly and efficiently. EFT payments can be used instead of cash and paper cheques.
The types of EFT payments
There are many different types of electronic fund transfers, some of which consumers and business owners use on a daily, weekly, or monthly basis. One main distinction for EFT banking is whether or not it required human interaction to complete the transaction.
Here are some main types and use-cases of EFT payments:
- Direct deposit: Electronically pay invoices, bills, and employees via payroll systems
- ATMs: Withdraw, deposit, check, and transfer funds between accounts electronically
- Debit cards: Make purchases online and in-store, transfer funds between accounts and pay bills online all using your debit card
- Wire transfers: Make large, infrequent purchases (such as a house downpayment) quickly and electronically
- Online banking: Use your phone or computer to view and transfer funds, electronically pay bills, and download financial statements
Likewise, there are pay-by-phone systems, direct payments between buyer-seller businesses, and electronic cheques (or e-cheques), which we’ll discuss in our next section.
The difference between EFT and ACH
ACH payments are also referred to as e-cheques or electronic cheques. They are a type of EFT or electronic payment and are any EFT payments that go through the Automated Clearing House (or ACH) Network. This network is a secure system that connects all U.S. financial institutions and is quickly becoming the go-to payment method for transferring money.
In fact, in 2018, the ACH Network handled nearly 23 billion EFTs, totaling a value of over $51.2 trillion.
Pros and cons of electronic funds transfer
EFTs have many advantages, including:
- Less costly than processing credit cards and cheques
- Faster, more efficient transfer of funds
- More secure than carrying cash and cheques (bank information on the bottom)
- Easy to use
- Digitally connected
- Easily automated
Some of the disadvantages of shifting business and personal banking processes to online systems are the same as upgrading any kind of process. It requires some time, research, and due diligence to look into the security features, cost-benefits, and efficiency and effectiveness of EFT payment options. Likewise, other systems such as automated billing, invoicing, and accounting systems may require updating and organizing digitally.
How to set up and manage EFT payments
In order to accept and initiate EFT payments as a business, you will require permission and bank account information from the customer, business or vendor. If you’re using your bank account, you will need to have your customer, business or vendor fill out a contact and account information form. Once you have this information, you can set up the EFT payment via online banking.
With this EFT payment setup, you can transfer funds from one account to another at an agreed-upon date. The amount of time to transfer funds depends on your EFT provider or your institution’s provider. Setting up recurring EFT payments is a great way to avoid having to set up payments and collect financial information.