What is an EFT payment?
Monday, 4 October 2021, 3 minute read
What is an EFT?
An EFT payment is an abbreviation for Electronic Funds Transfer, and it’s the ability to electronically transfer funds from one account to another using a computerised network. To perform an EFT, both the sender and recipient require bank accounts, but the accounts don’t need to be with the same bank to transfer the funds. An EFT is entirely remote and can be actioned via a computer, card reader, or telephone.
The Electronic Fund Transfer Act (EFTA) regulates this type of transaction to ensure your confidential, encrypted banking data stays safe and secure. The EFTA is used with many kinds of payment methods, including ATMs, point-of-sales, and others, to ensure all users’ data is safe.
Types of EFT payments
Now that you understand the meaning behind EFT payments let’s discuss the different ways you can transfer money using EFTs.
Traditional paper checks are becoming less and less popular as the years progress. Therefore, electronic checks have been invented. A digital check can be generated upon the payer’s authorisation and retrieved by the recipient via online banking.
With this type of electronic funds transfer, money is automatically deposited to an account with very little paperwork. A typical use-case for this type of EFT is paying employees or bills.
Different to an in-person card-present transaction, where a user inserts, taps or swipes their payment card, internet transactions, as the name suggests, require users to manually input banking details and confirm the payment for a transfer to occur.
Over-the-phone payments, as simple as they sound - you’ll need to supply your banking details verbally to pay the recipient.
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How do EFT payments work?
EFT payments are prevalent. But how do they work? EFT payments work from data. For a transaction to be successful, the following information must be supplied: senders bank details, recipients bank details. If both parties provide the correct information, the funds will be transferred from one bank account to the other, often accompanied by remittance advice. To better understand this, let’s describe an electronic funds transfer (EFT) in action:
You walk into the shop and you purchase a product or service. This vendor uses a card machine for payments. As that card machine already has the banking details of the vendor, they don’t need to re-enter them. However, it’ll still require your details, meaning you’ll need to put your card into the machine and enter your PIN code. During this, the card machine reads your bank data and only gains authorisation to decrypt the information once you’ve entered your PIN code.
EFTs exist to facilitate trade without the need for a visit to the bank each time. The level of input from users varies for each payment type, from online authentication for internet transactions, to a PIN for card payments and no input at all for a contactless payment. Payments are constantly evolving to become more efficient and more secure.