A Comprehensive Guide to EFT Payments (Electronic Funds Transfer)
Did you know that the use of Apple Pay by consumers for POS transactions has risen by 59% during the pandemic? Nearly 8% of consumers who have Apple Pay on their phones now use it to make payments, compared to 4.9% in March 2020.
Paper checks as a payment method are passé. The world has gone digital, so it only makes sense for small and medium-sized businesses to adopt Electronic Funds Transfers (EFT) to move money. Not only are EFT transactions easier to track and more hygienic, but they’re also faster since you no longer need to depend on an overburdened postal system for money transfers.
However, electronic payments aren’t as simple as they sound. There are a variety of ways to implement them and there’s a lot of complex terminology surrounding the process. So, let’s dive deeper into the world of EFT payments and learn how they work, the benefits you might expect, and a few of the most popular electronic payment options.
What are Electronic Fund Transfers or EFT payments?
An Electronic Funds Transfer is the digital transfer of funds from one bank account to another. The term EFT applies to a wide variety of electronic payments, which we will explore in a bit. Essentially, whenever a remittance is made from one bank account number to another, it constitutes an EFT payment.
How do EFT payments work?
EFT payments are also known as “electronic banking.” While EFT generally refers to funds transfers from one financial institution to another, it also includes P2P transactions and mobile payments.
The use of EFT on apps like Apple Pay has skyrocketed during the COVID pandemic. Retailers avoid paper payments to prevent the spread of the virus, and some small businesses have gravitated to accepting payments on P2P apps like Zelle and Venmo.
What are the benefits of Electronic Fund Transfers?
EFT payments are cheaper, faster, more hygienic, and much simpler to process than checks. Payments go through in just a few days and since they’re electronic, you don’t need to depend on the postal system to get your payment to the payee.
In most cases, EFT payments are a no-brainer for small to mid-size retailers. However, there is one factor to consider before you go completely paperless.
A recent Pew study found that 14% of Americans still primarily pay with cash. These consumers are also less likely to have used mobile payments in the past year.
Many consumers who fall in this category are “underbanked,” which means they don’t have a checking account, or they don’t have a smartphone or debit card to access it with. Because of this, you may want to retain a cash payment option if you sell small-ticket consumer essentials or food items.
Are EFT payments safe?
If you’re a first-time EFT payment user, you might feel a little nervous about sharing your bank account information. But keep in mind that EFT payments use the same bank account information that you would normally share on a check.
However, unlike checks, with EFT, there’s no risk of your bank account information ending up in the wrong hands. So, to answer your question, EFT payments are 100% safe.
What is the normal EFT payment processing time?
EFT payments are usually processed in 1-4 business days. Keep in mind that once you initiate an EFT payment, you can’t cancel it, unlike check payments. If you send funds by mistake, you must ask the receiving party to refund it once they get your payment.
What are the most common EFT payment methods?
EFT is an umbrella term that refers to many different types of funds transfers. Let’s look at a few of the most prominent ones, and their benefits for small to medium-sized businesses.
1. Debit cards
Debit cards can help you move money from your bank account to the payee’s, and you can use it to withdraw cash from ATMs. Not just for outgoing payments, they can be used for incoming payments from customers as well.
The “tap-to-pay” feature on cards allows customers to enter their card details without swiping. This is a great way to ensure touch-free payments during the pandemic.
2. Direct deposits
Direct deposits are an easy way to process payments to employees. It’s easy to outsource them, so they’re a great option for mid-sized companies or those without an HR department. They can be done through a service provider that processes your payroll and authorizes payouts.
3. Mobile wallets
Over half of Americans use mobile payments via mobile wallets such as Apple Pay. The app stores your credit card information, which you can access through Face ID or your passcode. Mobile wallets are a quick, secure way to process touch-free customer payments in-store and online.
4. Credit cards
Credit card providers such as Visa and MasterCard also allow tap payments. The only difference from debit cards is that you buy on credit, instead of transferring funds from your account to that of the payee. You can use them for incoming payments as well.
5. Wire transfers
Typically used for large, infrequent payments (because they involve a fee), wire transfers also offer a fast way to make payments.
6. The Electronic Federal Tax Payment System
The EFTPS is an EFT service that enables taxpayers to make payments to the IRS.
How do EFT payments differ from ACH payments?
ACH transfers or Automated Clearing House payments are a type of EFT payments. Over 20 billion ACH transactions are processed each year, totaling more than $40 trillion.
Be it Direct Deposits or electronic checks, ACH payments use the Automated Clearing House Network to send funds from one bank to another. It usually takes 1-2 business days to process, unlike credit or debit cards.
However, ACH payments are some of the safest, since they must meet the National Automated Clearing House Association (Nacha) security standards.
Even though ACH payments are a type of EFT payments, there is a difference between the two. All ACH payments go through the ACH network or Nacha, while EFT payments forego this – they’re just digital transactions between two financial institutions.
While ACH transactions are the most secure, EFT payments are faster, often in real-time. So, whether you offer ACH, EFT, or both will depend on what’s more important for your business – speed or security. You’ll also need to factor in the compatibility with your current payment processing solutions.
How do you track EFT payments?
EFT payments are encrypted for security. They’re easy to track since each transaction receives a unique EFT trace number. Most banks offer end-to-end tracking, so you can check the progress of your payment at any time. However, you’ll want to confirm that your bank offers this before you sign up for a business account.
Cash and checks will soon be a thing of the past. If you are considering switching to EFT payments, but don’t know how to mitigate the costs, contact Payment Depot’s award-winning support staff. They’ll help you understand your options and get the best possible rates for your business. Learn how Payment Depot can help your business save $800+ a month on credit card processing.