4 min read
Key takeaways
- Electronic funds transfers (EFTs) power modern business transactions, enabling secure, instant movement of funds across global banking networks.
- EFT encompasses the full spectrum of digital payment methods—from ACH and wire transfers to card payments and eChecks—providing flexible options for every business need.
- Organizations using EFTs gain immediate competitive advantages: reduced operational costs, accelerated cash flow and strengthened security protocols.
Businesses use electronic funds transfers (EFTs) to streamline and secure their financial transactions, including receiving payments from customers, paying suppliers, managing payroll and fulfilling other financial commitments, all without relying on physical checks or cash.
What are EFTs?
An electronic funds transfer (EFT) is a digital method of moving money between accounts, either within the same bank or across different banks, using systems like Automated Clearing House (ACH), Fedwire, FedNow or SWIFT. As businesses look to adopt optimized payment methods, EFTs drive modern transactions, eliminating reliance on traditional paper checks. This shift towards digital processes advances the banking landscape, streamlining routine payment activities into faster, smoother electronic transactions.
EFT payments include electronic transaction types such as ACH payments (including direct deposits, eChecks and peer-to-peer payments), as well as wire transfers, credit card payments and real-time payments (RTP) between banks.
Benefits of EFT payments
Beyond legacy payment systems, electronic funds transfers deliver efficiency and security across all payment operations.
Speed: EFTs typically deliver rapid settlement, which is crucial for cash flow optimization and working capital management.
Security: EFTs mitigate errors and fraud through secure digital channels and encryption technologies while eliminating manual processing vulnerabilities.
Operational efficiency: EFTs can help automate key activities, reducing manual intervention on payments activities such as payroll, vendor payments and treasury operations.
Cost efficiency: EFTs eliminate printing, mailing and processing costs, driving bottom-line value.
EFT vs. ACH
While often confused, an ACH transfer is one type of EFT. EFTs also include wire transfers and transactions using debit or credit cards.
The Automated Clearing House (ACH) is a centralized U.S. network transfer that clears credit and debit transactions for payroll, vendor payments, direct deposits and recurring bill payments. Unlike individual wire transfers, ACH settlements can take several days.
Types of EFT transactions
EFT platforms provide distinct transaction types to address specific business needs:
ACH transfers: The Automated Clearing House processes high-volume recurring transactions like payroll, customer payments and vendor payments through a centralized network. Predictable settlement timing and low fees make it ideal for batch processing, though ACH transfers cannot be made to accounts outside the United States. Examples of ACH transfers are:
- Direct deposit: Bank-to-bank transfers automate recurring payments with precise settlement dates. The system eliminates manual check processing while providing precise settlement timing.
- Electronic checks (eChecks): Digital check processing incorporates traditional banking controls into online invoicing and bill-pay systems, offering the familiarity of paper checks with faster processing times and reduced transaction fees.
- Peer-to-peer (P2P) payments: Mobile platforms transfer funds directly between individual accounts. Many small businesses and contractors use P2P payments for quick transactions with customers or suppliers. P2P payments often also allow payments to be easily split among multiple stakeholders.
Wire transfers: These high-value transfers enable same-day settlement for urgent transactions and cross-border payments. While more expensive than ACH, wire transfers provide immediate clearing for time-sensitive international and domestic transactions.
Credit and debit card transactions: Card networks deliver real-time authorization for point-of-sale and online transactions. Automated reconciliation and immediate authorization streamline cash flow management.
How EFT banking works
Electronic funds transfer (EFT) banking typically involves the following steps:
- Initiation: A business or individual triggers a transaction through online banking, mobile apps or point-of-sale terminals.
- Authorization: Multifactor authentication secures the transaction through passwords, PINs or biometric verification.
- Transmission: Secure networks route payment data between financial institutions via established channels like ACH or SWIFT.
- Processing: Banks verify the transaction details and available funds.
- Settlement: Funds move between accounts based on the chosen transfer method.
- Confirmation: Systems generate unique transaction IDs or reference numbers for record-keeping and provide confirmation to the parties involved.
Regulations governing EFT transactions
Federal regulations like the Electronic Fund Transfer Act (EFTA) help protect businesses and consumers using electronic transfers. Some of the federal law’s key safeguards include error-resolution procedures and fraud-protection measures.
How long do EFT transactions take to complete?
Transaction settlement times vary by EFT type:
- ACH transfers typically take one to three business days to process, with same-day options available.
- Direct deposits become available to recipients on their scheduled payment date.
- P2P payment speed varies by service, ranging from instant to three business days.
- Wire transfers usually complete within the same day for domestic transactions and one to two business days for international transfers.
- Card payments generally receive immediate authorization, with settlement taking one to three business days.
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References
JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/commercial-banking/legal-disclaimer for disclosures and disclaimers related to this content.
