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Table of Contents
What is Electronic Funds Transfer (EFT)?
Electronic Funds Transfer (EFT) refers to the digital movement of money from one bank account to another without the use of paper-based instruments such as cash or checks. EFT systems enable fast, secure, and efficient payment processing across financial networks.
Definition
Electronic Funds Transfer (EFT) is the electronic exchange of money between financial institutions or accounts using computerized systems.
Key Takeaways
- Enables cashless, paperless transfer of funds.
- Forms the backbone of modern payment systems.
- Supports domestic and international transactions.
- Improves speed, accuracy, and security of payments.
Understanding Electronic Funds Transfer
EFT encompasses a wide range of payment methods, including direct deposits, wire transfers, card payments, and automated clearing house (ACH) transactions. These systems allow funds to move electronically through banking networks without manual handling.
For consumers, EFT enables salary payments, bill payments, and online purchases. For businesses, it supports payroll, supplier payments, and large-scale transaction processing.
Because EFT systems reduce processing time and costs, they play a critical role in financial inclusion and economic efficiency.
Formula (If Applicable)
There is no formula for EFT. Performance and efficiency are typically evaluated using:
- Transaction processing time
- Settlement speed
- Error and fraud rates
- Cost per transaction
Real-World Example
An employer pays employee salaries via direct deposit, transferring funds electronically from the company’s bank account to employees’ accounts on payday.
This example shows how EFT replaces manual payroll processing.
Importance in Business or Economics
Electronic Funds Transfer is essential to modern financial systems and digital economies. It enables high transaction volumes, supports e-commerce, and facilitates global trade.
From an economic perspective, EFT reduces transaction costs, improves liquidity flow, and enhances financial system resilience.
Types or Variations (If Relevant)
- Automated Clearing House (ACH) Transfers: Batch-processed bank transfers.
- Wire Transfers: Real-time or near-real-time transfers.
- Card-Based Transfers: Debit and credit card payments.
- Mobile and Online Payments: App-based EFT services.
Related Terms
- Electronic Payments
- Digital Banking
- Payment Systems
Sources and Further Reading
- Investopedia – Electronic Funds Transfer (EFT): https://www.investopedia.com/terms/e/electronicfundstransfer.asp
- Federal Reserve – Payment Systems Overview: https://www.federalreserve.gov
- OECD – Digital Payments and Finance: https://www.oecd.org
Quick Reference
- Key Concept: Digital transfer of money.
- Primary Use: Payments, payroll, and banking transactions.
- Limitation: Dependent on system security and infrastructure.
Frequently Asked Questions (FAQs)
Is EFT the same as a wire transfer?
No. Wire transfers are a type of EFT, but EFT also includes ACH, card payments, and other electronic methods.
Are EFT transactions secure?
Yes, though security depends on encryption, authentication, and fraud prevention systems.
Can EFT be reversed?
Some EFT transactions can be reversed, but this depends on the payment method and timing.
