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An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
EFTs have become a popular mode of money transfer in the US because they are easy and don’t require very much bank employee intervention. As such, they have made paper checks all but obsolete, especially for businesses that can save time and money using EFTs.
Anyone with a bank account can send money, including businesses and individuals. EFTs require two parties: the person or entity sending money and the person or entity receiving the money. The sender initiates the transfer over the internet or at a payment terminal. The transfer request is sent to the sender’s bank and then back to the receiver’s bank. EFTs are commonly used by businesses to pay employees, by utility companies to collect payment for services, and by retailers to pay suppliers. Most EFTs are completed (cleared) and funds are available to use within a couple of days.
What are the Different Types of Electronic Funds Transfer (EFT) Payments?
Electronic Funds Transfer (EFT) is simple but can occur in a few different ways. The most common types of EFT payments are:
Electronic Checks – Sometimes called an e-check, this payment method generates a digital check as authorized by the payer. Many businesses use e-checks to pay their vendors.
Direct Deposit – Direct deposits bypass most of the paperwork of manual deposits and automatically deposit funds into an account. Many employees choose direct deposit as a payment option to eliminate a trip to the bank to deposit checks. The only requirement is a bank account. Users must also complete the initial set-up process, which may require some additional information.
Phone Payments – As the name implies, these EFTs happen over the phone. The payee supplies bank account information to the recipient and verbally authorizes the transaction. Phone payments are often used for utility payments.
ATM Transactions – ATM transactions are a type of EFT that relies on the digital transmission of info between a user’s bank and the ATM machine. When a person withdraws cash from the machine, funds electronically transfer from the person’s bank account and are physically dispensed through the machine instantly.
Card Transactions – When a person makes a purchase using a debit or credit card, either online or in person, account information is electronically received by the issuing bank, and a withdrawal in the amount of the transaction is approved. The payment is then scheduled and typically processes within one to two days.
Internet Transactions – With online transactions, users manually enter their payment card information into point of sale fields on a checkout page. Once that information is submitted by clicking a payment button, the issuing bank processes the payment approval. Just like with in-person card transactions, the payment is scheduled and funds are transferred within one to two days.
Electronic Funds Transfer (EFT) payments are quick, easy, and reliable. They require minimal effort from either the sender or recipient, making them an attractive solution for businesses and individuals alike.
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ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks in the United States.
ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network.
An ACH credit refers to the process of electronically depositing, or “pushing,” funds into a bank account using ACH.
In an ACH debit, funds are electronically withdrawn, or “pulled,” from a bank account using ACH.
A Notification of Change (NOC) is used to notify the sender of an ACH payment to correct or change information related to a customer’s bank account.
A return is a credit or debit entry initiated by the Receiving Depository Financial Institution (RDFI) that returns a previously originated payment to the Originating Depository Financial Institution (ODFI).
ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier to spot and resolve payment failures.
An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.
Credits and debits are two kinds of ACH transactions. Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.
FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks.
Part of the FedACH system, FedGlobal ACH offers low-cost and efficient cross-border ACH payments.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
A Standard Entry Class or SEC code is a three letter code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
US companies moving money internationally will likely weigh the pros and cons of SWIFT vs. Global ACH when it comes to attributes like speed and cost.
Payment rails are the underlying systems and networks that facilitate the movement of funds between parties in financial transactions.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks and financial institutions in the United States.
An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
Global ACH can help companies move money from US-domiciled accounts across borders using local rails. Learn how and when to use this payment rail.
A Request for Payment (RFP) is an ACH Network message that can be used by businesses to send electronic invoices to their customers.
Same-Day ACH is an improvement to the ACH network that allows the processing of credit, debit, and return transactions several times a day.
A pre note or prenotification is a zero dollar payment to validate the account and routing details of a bank account before debiting or crediting it.
An International ACH Transfer—also known as Global ACH—is an ACH payment made cross-border from a US-domiciled account.