An EFT payment, or electronic funds transfer, is any form of electronic money transfer. However, there’s a common misconception that EFT only relates to how you pay for things. We’ve all swiped, tapped or inserted our card into an EFTPOS terminal, but the EFT payment meaning goes far beyond that. Let’s take a look at exactly what EFT is, the different types of payments, and how it all works.
What is an EFT Payment?
As we mentioned, EFT stands for ‘electronic funds transfer’. So, it refers to any payment that’s processed electronically. For example, credit card payment processing is a form of EFT. Buying things online triggers an EFT payment. In the modern world, EFT is the most common way for money to exchange hands, because we’re increasingly moving away from physical cash.
There are plenty of people who don’t even carry cash anymore because the prevalence of EFT payment systems is so widespread. Parking meters around the country are going digital, so even that little collection of coins in your car’s console is becoming obsolete!
When making EFT payments, you’re essentially transferring money from one bank account to another. The accounts don’t need to be from the same bank or financial institution. Essentially, it’s a fast, easy and very traceable way to transfer money. Even if you don’t have a physical receipt for money that you transfer electronically, there is always a digital record on your bank statement and also held by your financial institution.
Types of EFT payments
As we touched on earlier, EFT doesn’t just refer to swiping your card while making a purchase. There are actually several forms of EFT payments out there. We probably do them on a daily basis without really thinking about it.
1. Credit and debit cards
Every time you use a credit or debit card, you’re making an EFT payment. This includes using cards to buy products in a store, online, or even over the phone. While the funds transferred might take a few days to clear, the EFT payment system automatically confirms that funds are available, essentially making the transfer/purchase valid instantly.
Using an ATM is a form of electronic funds transfer, even though you receive cash in your hand. This is because the ATM talks to your bank, confirming funds are available before disbursing the cash.
3. Wire transfers
Wire transfers are also electronic, even though the sender may provide cash over the counter at a bank or wire transfer facility. The funds are still transferred electronically so they are available to the recipient, who could be anywhere in the world.
4. Direct deposit/bank transfer
Electronic bank transfers can be used for a wide range of things. Many businesses allow you to pay invoices using direct deposit. Most employers pay their staff using direct deposit. You can even just use it to transfer money to friends and family, or between your own accounts. The process isn’t instant, though, and usually takes 2-3 business days for funds to transfer.
5. Online payment systems
You can use credit and debit cards to purchase products online, but there are other methods as well. Essentially, online payment systems allow for transactions to take place over a secure connection. This might be for online purchases, or even paying invoices online. Square Online Payments is one of these systems making it easier for businesses to get paid faster.
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How do EFT payments work?
Like most things that we take for granted in our technologically advanced world, there is a lot that happens behind the scenes when making a simple EFT payment in Australia. Plenty of infrastructure and technology supports every type of electronic payment, but mostly it comes down to one key function.
EFT payments require two parties to talk to each other electronically through a designated system. Wherever you have an electronic funds transfer, you have one source sending the money and another one receiving it. During this process, there is also a connection with the sender’s bank or financial institution to confirm availability of funds.
The confusion arises because EFTPOS is also an abbreviation for Electronic Funds Transfer at Point of Sale. This describes a process, rather than an actual system – which Eftpos is.
EFT Payment processing time
The time it takes for funds to transfer from one account to another varies greatly depending on several factors, such as the type of payment and the financial institutions involved. Usually, most transfers occur within 2-3 business days. Even when you use a credit or debit card to purchase something, the funds instantly disappear from your account but may still take a day or two to reach the recipient.
However, many banks and financial institutions are now making it faster to transfer money. For example, some banks use a system called Osko, which helps to speed up the process. Using Osko, if you transfer money to an account that you’ve already transferred to in the past, it can arrive with the recipient instantly. This system uses a PayID rather than BSB numbers, and even allows you to transfer money to people instantly if you know their mobile phone number.
Benefits of Electronic funds transfer
As you can see, the technology around EFT is always evolving. But what is EFT payment’s main benefit? Well, there are a few.
Speed of transactions
Instantly pay for items online, in-store or by phone.
Keep less cash on premises, and carry less cash when doing your business banking.
There’s a record of all EFT payments. Plus, when using a quality POS system, all sales are instantly recording for accounting purposes.
Convenience for customers
It’s safe, easy and convenient to make EFT payments.
The more payment options you offer, the more chance you have of increasing sales.
You can’t be accidentally (or deliberately) short-changed when paying electronically.
Do businesses have to offer EFT payments?
While it’s not a law to operate a cash-only business, in today’s modern world it is extremely beneficial to have an EFT terminal available to customers. Most people prefer to pay with cards, so if you don’t offer electronic payments, you could be limiting your selling potential. Plus, since the Covid-19 pandemic, people are more focused than ever on going cashless, with some not even carrying cash anymore.
EFT payments make things easy for everyone. There’s convenience for customers, better security because you hold less cash on the premises, and electronic records are all recorded automatically.