Whether you're accepting payment from customers, issuing payments to vendors, paying bills, buying inventory, or running payroll, your business probably deals with electronic transfers of funds on a regular basis. While you may have come across the acronym "EFT" in the context of payments, you might not know what EFT stands for, what it means, and how a business could use EFTs to send and receive payments.

Here's what you should know about the different kinds of EFTs and how you can make the most of them for your business.

What's in this article?

• What is the meaning of EFT?
  
• What are EFTs used for?
  
• How do EFTs work?
  
• EFT vs. ACH transfers
  
• EFT vs. electronic transfers
  
• Types of EFT payments
  
• How long do EFT payments take?
  
• EFT benefits for businesses
  
• How Stripe Payments can help
  

What is the meaning of EFT?

Electronic funds transfers (EFTs) are transactions that move funds electronically between different financial institutions, bank accounts, or individuals. EFTs are frequently referred to as electronic bank transfers, e-checks, or electronic payments. EFT is an umbrella term that includes many types of transactions and transfers, but in short, any transfer of funds that takes place electronically is considered an EFT.

What are EFTs used for?

EFTs make it possible to send and receive payments without using cash or paper checks, saving businesses and individuals time and money on many different kinds of transactions. Electronic payments have a number of uses, including:

• Consumer purchases
  
• Utility and other bill payments
  
• Direct deposit payments
  
• Funds sent between family and friends
  
• College tuition payments
  
• Tax refunds and payments
  
• Retirement and investment account contributions
  
• Charity donations
  

How do EFTs work?

An EFT is completely digital. Here's a step-by-step look at how it works:

1. Initiation: The person sending the transfer authorises a payment via their bank by entering the recipient's bank details.

2. Authentication: The sender's bank verifies their identity and checks that their account has sufficient funds.

3. Scheduling: The bank schedules the transfer.

4. Transmission: The transfer is sent securely via a payment network, such as ACH or SWIFT.

5. Settlement: The recipient's bank receives the funds and deposits them in the recipient's account.

EFT vs. ACH transfers

Automated Clearing House (ACH) transfers are electronic transfers between two financial institutions made using the ACH network, which connects and facilitates transactions between banks and credit unions in the US and Puerto Rico. ACH transactions, which are electronically transferred funds, are a type of EFT, but not all EFTs are ACH transfers.

So when do you refer to a payment as an ACH transfer, and when do you call it an EFT? If you're talking specifically about a transfer sent using the ACH network, then it would be accurate to refer to it that way. If you're talking about electronic bank transfers generally, you could say EFT, bank transfer, or electronic payment – all of these are correct.

EFT vs. electronic transfers

The relationship between EFTs and electronic transfers is essentially the same as between EFTs and ACH transfers. Whereas ACH transactions move funds through the ACH network using a bank's routing number, which is administered and operated by the National Automated Clearing House Association (NACHA), electronic transfers are facilitated by the Federal Reserve, and transmission takes place on the Federal Reserve Wire Network, also known as the Fedwire.

Types of EFT payments

Since any funds transfer that's completed using an electronic network is considered an EFT, the term encompasses a range of products. For instance, withdrawing cash electronically from your personal current account is a very different function to paying for your best friend's birthday dinner or sending thousands of pounds to a vendor in another country – but all of these actions involve EFTs.

Here are some popular types of EFTs that move funds around the world through a variety of use cases:

• Direct deposit
  Direct deposit, also called direct credit, is a type of transfer most commonly used by employers to issue employee paychecks. In these transfers, the funds are electronically deposited directly into the recipient's account. Different regions have their own direct credit networks, including ACH in the US and SEPA in Europe.

• Direct debits
  Whereas direct deposits involve funds being pushed into the recipient's account, direct debits work in the reverse direction. Funds are pulled from one account, with prior authorisation, and sent through the network to another account.

• Electronic transfer
  Electronic transfers (also called wire transfers in the US) were the very first EFTs. This method dates back to 1851, when early transfers were sent over Western Union's physical wires. These days, domestic electronic transfers in the US are conducted through the Fedwire network, and electronic transfers abroad use various networks based on location – all of these are EFTs.

• ATM transactions
  ATM withdrawals, transfers, and deposits are all EFTs, starting with the world's first ATM machine, which opened in 1967 at a Barclays bank in London.

• Debit cards
  Since first arriving on the scene in 1966, through the Bank of Delaware, debit cards have been the most frequently used type of EFT for consumers.

• Peer-to-peer payments
  Starting with PayPal in 1998, then known under its original name, Confinity, there has been a proliferation of applications that facilitate direct peer-to-peer payment methods. These apps, which now include widely used options such as Venmo, Cash App, and Zelle, are an easy way for consumers to make direct payments to businesses, for businesses to send payments to other businesses, and for family and friends to exchange funds.

• Any electronic payment sent using bank account information
  If you're unsure whether to classify something as an EFT, there's a simple way to check: if the payment is sent electronically, meaning no cash or paper checks are exchanged, then the transaction is an EFT.

How long do EFT payments take?

Some EFT payments, such as contactless digital wallet payments that use near-field communication (NFC) technology, take just a few seconds from start to finish. Others, like ACH transfers, take several days. Here's a quick rundown of how long different types of EFTs take to deliver funds to their final destination.

EFT benefits for businesses

Using EFTs to make payments is an unavoidable part of doing business today – and that's a good thing. EFTs offer important benefits that account for their popularity, including:

• Ease and flexibility
  Because EFTs encompass such a large scope of products for so many different uses, there's a tremendous amount of flexibility when it comes to moving funds electronically. Whether you need to access cash quickly with an ATM, pay your employees using ACH direct deposit, or send a electronic transfer to a vendor overseas, there's at least one type of EFT that works for most types of consumer and B2B transactions.

• Security
  As technology has developed, EFTs have become more and more secure, both for consumers and businesses. For example, early debit cards used the magnetic stripe on the back of the card to transmit the real card number to the card reader, making the transaction vulnerable to fraud attempts. Now, most card payments use EMV chips or contactless NFC payments, methods that send encrypted codes, and not the card numbers themselves, to card readers. This is just one example of how EFTs have become safer, more secure, and more reliable over time.

• Affordability
  Different types of EFTs have different fees, which can vary based on network or provider. Overall, fees on EFTs are relatively low, especially when weighed against other factors like speed and convenience.

• Widespread acceptance
  While some newer EFTs, such as digital wallets, are still gaining adoption worldwide, the majority are now considered foundational staples of the worldwide economy. Examples include debit cards, wire and ACH transfers, and ATMs. No matter where you're located, what kind of industry you work in, or what fund-transferring task you're trying to complete, there is probably an EFT that fits your needs.

• Speed
  Ultimately, most types of EFTs were created to solve the problem of moving money quickly and easily. EFTs are exponentially faster than manual funds transfers for sending and receiving money.

EFTs also come with disadvantages to consider. Transfers that require manually entering bank details can be prone to human error, and bank-to-bank transfers are difficult to reverse if sent to the wrong account. These challenges require close attention, but the advantages of EFTs often outweigh the disadvantages for businesses.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.

Stripe Payments can help you:

• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods and Link, a wallet built by Stripe.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty and grow revenue.

• Improve payments performance: Increase revenue with a range of customisable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorisation rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments or get started today.