Electronic Funds Transfer

What Is An Electronic Funds Transfer?

Generally, an electronic funds transfer is a transaction by which computers, mobile phones, or magnetic strips are used to grant permission to financial institutions to debit or credit the holding accounts of their customers. Usually, electronic transfers are done with the aid of automated teller machines (ATMs), direct deposit, debit cards, automated clearing house (ACH) systems, point-of-sale (POS) transactions, and pre-authorized withdrawals from savings or checking accounts.

Deeper Definition

Electronic fund transfers are used to move money from one account to the other electronically, with the two accounts involved being either of the same or different financial institutions. Electronic funds transfer payments and transactions have a central processing system known as the automated clearing house (ACH) system. All financial institutions and credit unions in the United States are connected. The transactions are usually processed in batches, with a lot piled up during the day to be authorized later. The sender is usually required to provide some vital information, including the type of account to be credited, the name of the recipient’s bank, the account details of the recipient, and the corresponding routing number.

Electronic funds transfer usually reflects after one working day, but exceptions may arise when international transactions or those involving amounts over $25,000 are processed. Besides these, holidays and weekends might unnecessarily prolong the period within which funds transfer requests are attended to. To see to the supervision and monitoring of the process, the government put in place the Electronic Funds Transfer Act (EFTA) to ensure compliance by the participating parties and to see to the enforcement of proper retention of records, resolution of errors, privacy agreements, terms of customer liability and possible compensation in cases of default on the part of the financial institution. Once the good standing of the account is guaranteed, the transfer can proceed as planned. The accounts are usually unlocked using the log-in details of the user or a personal identification number (PIN)

Electronic Funds Transfer Example

The most commonly used variant of electronic funds transfer is the direct deposit. Payments are directly made into recipients’ accounts, e.g., when employers pay salaries directly into the accounts of their staff members once arrangements are made with their banks.