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EFT (Electronic Fund Transfer)

EFT (Electronic Fund Transfer)

Electronic Fund transfer is a systematic process of transfer the money from one bank account to another bank account. In this scenario the money doesn’t change hands neither does it require any paper work. The transfer can be done across different institutional bank accounts via systems which are executed through computers or mobile phone.

Most of the banks usually have mobile based apps or and browsers where customers can execute any of the banking services. The internet banking enabled bank account gives the customer a unique credentials using which they can log in to the system and perform fund transfer to another person’s account in a different bank all together also. The transaction need not or will not have the direct intervention of the bank staff.


Types of EFT-

Funds transfer can be executed through various means via credit card, debit card, direct account or a wire transfer. Below are the different types of EFTs.

1. Wire Transfer: A customer holding bank account can make transfer through wire transfer to transfer funds to another account. The wire transferring account will need the customer’s direct account information and authentication during the transfer. ATM withdrawals, online bill pay services are also other means.


2. NEFT: National Electronic Fund Transfer is a means to transfer the amount from one account to another account in same or multiple bank accounts. Usually salaries are credited using the NEFT. The bank send money will charge a fee for the transaction it is handling and will be charged to the person/company wishing to transfer the amount.


3. RTGS: Real Time Gross Settlement is a process to transfer amount from one account to another account in real time. The minimum transfer amount is 2 lakhs. RTGS can be processed throughout the business hours of the bank. The fee charged by bank is little bit more from NEFT.


4. IMPS: IMPS stands from Immediate Payment Service and as the name indicates through IMPS, the money can be transferred immediately even through the mobile applications of the banks. The mode of transfer can be direct, mobile and internet banking.


5. Unified Payments Interface (UPI): UPI is a type of EFT which can facilitate payment up to 1 Lakh using any smartphone. This mode uses the VPA (Virtual Payment address) and the process is very simple compared to the rest of the EFTs. UPI payments are very cost effective and banks usually charge nothing for these type of transactions from the customers.


Examples of EFT and how does it work?

With the digitization of money, there is more circulation of digital money than the actual currency in the economy. For every day to transaction, even for small bill payments, EFTs are used. Payments through mobile apps like paytm, gpay, phonepay and amazon pay are UPI type of EFTs. The virtual payment address is scanned through quick response code (QR code) and the amount to be transferred to entered. Post the authentication of sender from the account, the amount will hit the receiver’s account then and there only instantly. All AFT mode of payment will require the final authentication from the sender to validate the account password. This mode reduces the interference of the bank employees directly. The payments done through are secure and automatically stored in the sender and receiver account transaction details.

Especially after the demonetization of 500 and 1000 Rupee note in India in November 8th 2016, the government is forcing the common public to use EFTs more often and for each and every type of transaction. This way it is easy to track any transaction in case of particular scrutiny. For the same reason the payment apps along with the government is encouraging the EFT mode of payment for the customers. The physical circulation of currency has reduced significantly after this tenure. As the transactions are also easy to execute, track and trace back, number of customers using EFT mode payments are also increasing.


Difference EFT and ACH

• EFT is electronic fund transfer and ACH stands for automated clearing house.

• Both are electronic payment modes with limited direct involvement from the bank employees.

• ACH is special type of EFT where the amount is transferred from one account to another bank account.

• In ACH customer would have given the authorization to the bank to transfer amount to specific account on his behalf automatically at a particular time.

• ACH can be used for periodic bill payments, unlike EFTs they don’t mandatorily require sender authorization during the transfer as it would have been already collected in the beginning.

• ACH use the clearing house as an intermediary clearing house which is absent in rest of the EFT mode of payments to facilitate the account transfers.

• The sender can easily modify the amount, date and other details of transfer in the ACH payment which is not so easy in case of EFT payments.


Advantages of EFT

• EFT mode of transfer are quick and paperless in nature.

• The transaction are easy to execute and trace back.

• The fees charged is usually less or none in case of Electronic fund transfer transactions.

• Customer can execute these transaction with ease from any location.

• Simplest interface like banking apps and payment apps are very user friendly to handle from customer’s perspective.

• It saves printing cost and also saves the time for the bank employees to complete the transactions.


Disadvantages of EFT

• Details of beneficiary has to be entered error free otherwise the recovery may be very difficult.

• The transactions will fail or get delayed if the supporting banking servers are busy or under maintenance.

• Once the remittance is done the sender will have no control over the funds.

• Stop payment or holding is not possible as in case of cheque transaction.

• As the transactions are very quick, the institution has very limited time to prevent the fraudulent transactions and hackers.


Conclusion

EFT mode of payments are present and future trend in the banking industry. All transactions moving towards EFT transfers. It makes the life of bank employees and customers easy to call it a first priority. The transactions are easy and quick to be executed. Government’s policy like demonetisation has encouraged more customers to use EFT mode of payments for day to day transaction and even for business transaction. It is easy to perform fraud transactions online, thus to shoo away the hackers from performing fraudulent transactions the limit for transactions are set in each mode of EFTs. Even though government along with banks are working towards making the EFT transfers more secure, the modes currently available are the safest compared to the rest of the modes.


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