What Is an EFT Payment?



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Our world is constantly changing, and nowhere is this more palpable than in technology. More and more we come to rely on digital systems and applications to make our lives easier, be it in tracking our exercising habits, choosing the best prices for airline tickets, and of course, using safer and easier ways to make payments and financial transactions

Sure, electronic payments aren’t exactly a novelty. As a matter of fact, they’ve been around since 1978, when the Electronic Funds Transfer Act was created by the US government to oversee such transactions. EFT payments have also evolved since then, now including everything from regular remittances to mobile payments.  

Let’s learn more about EFT payments and how they operate. 

The meaning of EFT Payment 

EFT stands for Electronic Funds Transfer, which basically means any transfer from one bank account to another conducted electronically, either within the same financial institution/bank or across different ones. Through an EFT payment, a given institution is authorized to electronically transfer the funds from sender to recipient.  

EFT payments are usually associated with business activities because of the need to pay vendors, providers, employee salaries, and so on. But, in reality, we conduct EFTs in our personal lives as well. A common EFT payment example, for instance, is when you pay for groceries using your debit card. 

Back in the day, all of these transactions happened with paper, either in cash or through checks. But now, most of them happen electronically, which means they are safer and more reliable. Why? Because they are processed through network systems and need to follow specific information requirements. 

But how does an EFT Payment work? 

In the United States, EFT payments – or electronic funds transfers – work through the ACH (Automated Clearing House) network, which connects financial organizations, consumers, and governments. Its purpose is to process and look after these electronic financial transactions. The ACH network is operated jointly by Reserve Banks and the Electronic Payments Network (EPN), and is where all of these transactions (credits and debits) are processed in batches. 

In order for every transaction to take place, data needs to be provided. The sender needs to include, for example, the recipient’s account number and bank name, the routing number and the type of account, among other pieces of information (depending on the type of EFT payment being processed). 

EFT Payment examples and methods 

As we’ve discussed, EFT payments are actually more present in our lives than we imagine. Many of our day-to-day transactions fall under the EFT umbrella. Let’s go over a few of them:  

  • ATMs (automatic teller machines): let’s say you’re using an ATM to transfer money from your account to another one. In this case, you’re engaging in an electronic funds transfer.  
  • Direct deposits (or direct credits): a predefined deposit made electronically from one account to another, such as a salary payment organized by a company. A direct deposit will include a reference field, which will include information like an invoice number to help identify  the recipient of the credit identify the sender.  
  • Wire transfers: another type of account-to-account transfer , usually involving large amounts (such as down payments, real estate deals, business equipment purchases, etc.). A primary example of an EFT payment, wire transfers can be processed by a person, company, or organization.. 
  • Direct debits: also known as direct withdrawals or pre-authorized debit (PAD), direct debits usually happen when the financial institution is instructed to collect funds from one account and deposit them into another as payment for services or goods. Such transfers need to be formally authorized by the payer before taking place. 
  • Debit (and credit) cards: whenever you use your debit or credit card for a regular transaction, you’re carrying out an EFT payment. In these cases, the transaction is secured through your PIN number when required. Be it online or at a physical store, once you enter your PIN and the transaction is successfully verified by the payment system, the amount will be transferred from your account to the merchant’s account.  
  • Electronic checks (or e-checks)as the name indicates, they are electronic versions of regular paper checks that are available in certain checking accounts. Actually, e-checks might even be used as an umbrella term for EFT payments as a whole. Information such as the bank account number and bank routing number are required to issue an e-check, and the transaction itself is processed as an EFT payment via the ACH network.  
  • Online banking: Online banking is similar to using an ATM. You’re conducting a financial transaction, without speaking directly to a teller, through your computer or mobile phone. Operations such as moving money between different accounts will be classified as EFT payments as well. 

Depending on their types, the systems where they take place, and the networks used, these payments may take longer to be processed. They can range from instant to taking a few business days to be completed. But what’s important is that they represent a much more reliable option than what we had in the past.

EFT payments are not some mysterious banking acronym. They’re already part of our routines. Whether we are running a large business or going about our daily lives, we rely on electronic funds transfers to conduct our financial affairs successfully.  


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