You may have heard the term bandied around, but what is an EFT payment? Why should your organization consider adding this option moving forward? Here’s what you need to know.
What Is an Electronic Fund Transfer: Defined
Short for electronic funds transfer, an EFT is an umbrella term used to describe a broad range of payments made from one user’s bank or credit card account to another. Both accounts can be at the same financial institution or at different ones. The transfers are always electronic — normally sent over the same networks used by the Automated Clearing House (ACH) and wire transfers used to move funds among different banking accounts.
Types of EFT Payments
There are many types of EFT payments, each with pros and cons, depending on the context.
1. Credit and Debit Cards
Because most card-based payments travel electronically, they count as EFT transactions — whether the buyer and seller are face-to-face or interacting remotely through an online shopping cart. In fact, credit card processing is one of the most popular types of EFT payments.
2. Direct Deposit
These are EFT payments that companies set up so that paychecks automatically appear in each employee’s banking account without needing to receive, sign and deposit conventional checks. Most direct deposit transfers rely on the ACH Network.
3. Electronic Checks
These are similar to traditional paper-based checks. However, the transfer of money happens electronically — provided that the sender has the receiver’s bank account and routing number.
4. Wire Transfers
Seldom do banks physically carry cash from one institution to another when their customers try to move money around. Instead, they use wire transfers to move the funds electronically from one user’s account to another.
5. ATMs
ATMs technically fall into the EFT category since customers can manage their entire accounts digitally from a touchscreen. Popular self-service options include making withdrawals, depositing money, transferring funds and checking account balances — all without having to interface directly with a bank teller.
6. Pay-by-Phone
Some businesses allow their customers to pay over the phone (or by mail) — provided that these organizations have a credit card terminal or virtual terminal on their side to input each user’s payment data. In most cases, the customer will use a credit or debit card, but they can just as easily supply their bank account and routing number instead.
If your business already uses one of the options above, you should already know how to accept EFT payments. The next section explores how payments made over the ACH Network ultimately work.
How Do EFT Payments Work?
Because EFT is a broad term, there are several mechanisms through which money may move from one account to another. For example, Visa, MasterCard and American Express all actively manage their networks to facilitate payments. However, most EFT payments that don’t directly involve credit cards happen over the aforementioned ACH network.
The sender and receiver must provide their bank accounts and routing numbers to set up an initial ACH connection. To send ACH payments, the sender indicates how much money they wish to transfer to the receiver. Then, the ACH Network electronically moves that exact amount from one banking account to another.
How Long Do EFT Payments Take to Process?
EFT payments normally post within 1-3 business days — at least for domestic transfers. This settlement time is comparable to credit card processing, which also takes 1-2 business days. International transfers take a little longer since the ACH Network is specific to the United States, with foreign banks needing time to convert these payment requests into their electronic networks.
Benefits of EFT Payment Processing
Payments made through the ACH Network are relatively inexpensive, with the typical transfer costing only a few dollars — even when sending large amounts. This is why many companies favor ACH transfers over payment options that use percentage-based pricing (such as with credit cards). Depending on the volume, frequency and amount, ACH payments are sometimes more cost-effective.
Speed and convenience are also major selling points. Fast settlements are ideal for businesses worried about cash flow. Plus, once a sender and receiver have gone through the process of establishing an ACH connection, that connection stays in place — minimizing unnecessary paperwork later. This simplified set up is precisely why so many businesses pay their employees via direct deposit over the ACH network.
Additionally, because EFT payments are electronic, there are no physical inputs required — which is in sharp contrast to paper-based checks that often need envelopes, postage, and gas to reach their destinations.
Better for You, Better for All
Because most money moves digitally these days, nearly all transactions technically qualify as electronic fund transfers. This includes the credit card transactions that your business may already process. However, joining the ACH network can make sending and receiving money faster, less expensive and more convenient for your organization. This is true whether the goal is to pay your employees or to improve the overall shopping experience for your customers.
To learn more about CardConnect’s EFT and credit card processing solutions, schedule a free consultation with our payment experts today.