EFT is short for Electronic Funds Transfer. An EFT is a method of transferring money from one bank account directly to another account without any paper money actually changing hands. The two accounts do not have to be in the same bank.
One of the most common EFT programs that are used is Direct Deposit. This program allows an employee’s paycheck to be directly deposited into their bank account. However, EFT is more than simply direct deposit. EFT refers to any direct transfer of funds that are initiated through any terminal, such as credit card, ATM, Fedwire, and point of sale (POS) transactions. It is used for both credit transfers, such as a payroll payment, and for debit transfers, such as a mortgage or credit card payment.
These transactions are processed by the bank through the Automated Clearing House (ACH) network. This is the secure financial transfer system which connects all financial institutions in the United States together. For customer payments, the funds are electronically transferred from the customer’s bank account to the billing company’s bank, typically less than one day after the scheduled payment date.
EFT transfers are becoming very popular with both customers and banks. This is paving the way toward a paperless financial system, where checks, stamps, envelopes, and paper bills are a thing of the past. Benefits of using EFT include lower administrative costs, increased efficiency, simplified bookkeeping, and more security. However, the number of companies who send and receive bills via the Internet is relatively small.
EFT compliance is monitored by the United States government through Regulation E of the Federal Reserve Board, which controls and implements the Electronic Funds Transfer Act (EFTA). Regulation E oversees financial transactions with electronic payment services, mainly regarding disclosure information, customer liability, error resolution, record retention, and receipts at electronic terminals.