The Complete Guide to EFT: What It Is and How It Works

When shoppers buy something online, tap a card at a store, or settle with a merchant using an app, the money moves instantly, no paper money or documents involved. Rather, it is facilitated by an electronic funds transfer, or EFT – the foundation of modern financial transactions.

From paycheck direct deposits to online bill pay, EFTs power almost all electronic money transactions today, so they're absolutely vital to conducting business.

Here in this article, we'll break down everything you need to understand about SID EFT deposits and how they can help your business.

What are EFT payments

EFT payments are electronic funds that transfer money from one bank account to another bank account without the use of paper checks, cash, or documents. It's the catch-all phrase for digital payments, including credit card purchases, wire transfers, and ACH payments.

Instead of dealing with money the old-fashioned method (writing checks, waiting for them to clear, depositing cash), EFTs enable businesses and consumers to send and receive payments electronically at any time, anywhere. In simple words, individuals and organizations all over the world use EFTs because of their convenience and ease of use. 

How does EFT differ from traditional payments?

Speed: Companies do not have to wait for checks to clear or for the recipient to count the money

Convenience: Funds are transferred automatically, reducing manual efforts

Security: No possibility of lost checks or stolen funds except via frauds and hacks

Automation: Companies can automate payroll, vendor payment, and bill payments

Overall, EFT payments make money movement simple and hassle-free.

How do EFT payments work?

Essentially, EFTs are a safe virtual handshake between two entities or financial institutions across the world. Here's an easy-to-understand explanation of how EFT transactions occur:

The sender initiates the payment. This is the company or person requesting to pay funds electronically. This can be a payroll deposit, online purchase, or bill payment.

The sending bank presents the transfer, verifies the data, and initiates the transaction

The funds move across a payment network. Depending on the type of EFT, the payment could go through an ACH network, card network, or real-time transfer network.

The recipient's bank then receives the money when the payment network verifies the transaction

The payment is complete, allowing the recipient to spend and access the money

Not all electronic bank transfers, which may take days, most EFT payments are in a flash or within hours.

7 EFT payment types

EFT isn't an all-at-once system: There are a number of ways that money electronically travels. Here are the seven types of EFT payments businesses and consumers make every day:

1. Direct deposit (government and payroll payments)

Direct deposit is the standard for most workers. Instead of printing checks and sending them out, businesses pay workers through direct deposit by EFT to their bank account.

Employers commonly have third-party vendors handle these services, and they provide the payment details (i.e., how much each person is paid and when) to the system so it can just automatically take care of the rest.

Direct deposit is less expensive, quicker, and more secure than paper checks, and most companies currently utilize 100% direct deposit for payroll. 

General applications: Paychecks, tax refunds, social security income
Speed: Usually same-day or next-day processing

2. Automated clearing house (ACH) payments

ACH, or the automatic movement of money between bank accounts, usually in batches, is the basis of U.S. EFT transactions. It's also the way most bills get paid and direct deposits are made, ACH payments often flowing through a network regulated by NACHA and operated in part by the Federal Reserve (in contrast to credit card networks operated by private companies).

ACH transfers usually take two or three business days. They can be for credit (funding) or debit (dipping). ACH is used most often for business-to-business (B2B) payments, direct debit, and recurring payments, such as utility bills or gym membership fees.

3. Wire transfers

Need to send a lot of money quickly? Wire transfers are the answer. They bypass processing time and transmit money directly from bank to bank, often in a few hours.

Individuals and businesses often use wire transfers to large expenditures that are not typical spending, like high-priority, high-value transactions. It's a fast, secure way to send money when conventional payment methods aren't adequate.

• Typical uses: Property transfers, foreign exchange transactions, large business transactions, etc.
• Speed: Same day (domestic) and 1-2 days (international)
• Cost: Charges are between USD 15-50 per transaction

4. Credit/debit card transactions

Every time you swipe, tap, or enter your card online, you're making an EFT payment. The card network processes the payment, taking from your bank and putting it into the merchant. While businesses are required to accept card payments, charges on transactions can add up quickly.

Common uses: In-store transactions, online shopping, restaurant checks

Speed: Immediate (but settlement will take 1-3 days)

5. Electronic checks (e-checks)

E-checks are really electronic versions of paper checks. Instead of mailing a check, companies make electronic payments through ACH. They simply need to use their bank and routing account numbers to make a payment. E-checks are also popularly used in B2B payments because they offer the security of paper checks without the notorious delays.

Typical uses: Online bill payment, rent payments, invoice settlement

Speed: 1-3 business days

6. Mobile payments (apps like Venmo, PayPal, and Zelle)

Peer-to-peer (P2P) payment apps are extremely popular nowadays. Platforms like PayPal, Venmo, Cash App, and Zelle enable individuals to send money directly from their mobile phones, and since they are so convenient, more and more businesses are now accepting them. After all, they're convenient, fast, and widely used by customers.

Typical uses: Bill splitting, paying freelancers, and small business transactions

Speed: Instant (if same platform)

7. Automated teller machines (ATMs)

When people withdraw money or make a deposit from an ATM, the machine immediately updates the bank account through an EFT. The method makes it possible for users to manage money without actually going to the bank.

Why EFT payments are a game-changer for businesses

For companies, transitioning to EFT payments is no longer a choice. Here's why:

Faster payments: No need to wait for a check to be cleared. Payments are made successfully in a matter of hours or days and not weeks. Remember, it's all about giving the most convenient form of payment.

Lower cost: EFT reduces printing, delivery, and processing paper check costs

Effort and automation: Businesses can automate bill payments, payroll, and invoicing, saving time and reducing errors

Enhanced security: No late checks, no cash transactions open to fraud, and businesses will enjoy encrypted, traceable payments

Increased cash flow: Businesses receive payments sooner, improving liquidity and financial position

Regardless of whether businesses pay employees, pay vendors, or receive payments from customers, EFTs make the money flow easier, faster, and more reliable.

Since finance went entirely digital following the enactment of the Electronic Funds Transfer Act of 1978, companies and individuals have increasingly relied on electronic fund transfers to disburse and accept money in an instant. Money now largely resides in the realm of computer data rather than in the form of cash.

From wire transfers to mobile payments to direct deposits, EFT facilitates the global economy to continue rolling by making transactions fast, secure, and easy. That's why choosing the right EFT payment method is so important, simply streamlining money management for your company.