EFT is a blanket term that refers to many different types of transactions that happen at least partially electronically, without physical money changing hands between actual people. So an electronic funds transfer example isn’t too hard to find. Here are some that happen daily.
Electronic Check
In place of a paper check, this method involves a person giving a merchant the information that would typically be on a check. Then the merchant can, on the person’s authorization, create a virtual check and accept it as payment.
Direct Deposit
A payer uses a payee’s banking information to send money directly to the payee’s bank account at specified intervals. This is typically used by employers to pay their employees without using paper checks. It can also be used for recurring payments (such as for utilities), or paying off large debts in installments.
In the US, direct deposit often goes through the Automated Clearing House (ACH) system, which processes transactions in batches. So when it comes to electronic funds transfer vs. ACH, payments that go through the ACH are a type of EFT: money is moved electronically between accounts, with minimal paperwork or human involvement. However, not every EFT transaction involves the ACH; some are processed sooner (even immediately).
Automated Teller Machines (ATMs)
These are electronic kiosks that a person can use to withdraw, deposit, or transfer money. The appropriate accounts at their financial institution are electronically debited (or credited), without the person needing to actually enter a bank.
Credit and Debit Cards
Many people now use payment cards instead of cash at points of purchase. By swiping, dipping, or tapping a card on a reader, the reader collects a customer’s banking information and authorizes a withdrawal of funds to pay for the items or services bought.
Pay-by-Phone
Similar to electronic checks, this involves a person giving a merchant their banking information over the phone to authorize a payment from the person’s account. It can also involve a person phoning their bank to move money between accounts or authorize bill payments.
Wire Transfers
The term “wire transfer” typically refers to the electronic transfer of money between banks, either domestically or internationally. They generally allow large sums of money to be moved in a short amount of time but can be expensive in terms of fees. They also usually can’t be canceled once they’re initiated.
The difference between electronic funds transfer vs. wire transfer is simply that wire transfers are a specific type of EFT, similar to ACH payments.
Online Shopping and Banking
Many shopping and banking transactions can now be done virtually anywhere over the internet. Like with other forms of EFTs, customers provide their banking credentials ahead of time or as authorization. Then they can pay for goods or services purchased, pay bills, move money between accounts, and so on without handling any physical money.
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