Electronic Funds Transfer is a system of transferring money from one bank account directly to another without any banknotes/coins changing hands. EFT refers to the computer-based systems used to perform financial transactions electronically initiated through the exchange or transfer of money either within the same financial institution or across multiple institutions using an electronic terminal (ATM, Point-of-Sale, Credit Card, etc), the telephone or the computer. It is also used for both credit transfers (such as payroll payments) and debit transfers (such as mortgage payments). Transactions are processed by the bank for payments where funds are transferred electronically from one bank account to the billing company's bank and usually takes less than a day after the scheduled payment date. The cost for an EFT may vary among the commercial banks.
The growing popularity of the EFT for online bill payment is paving the way for a paperless environment where cheques, stamps, envelopes and paper bills are obsolete. The benefits of the EFT include reduced administrative costs, increased efficiency, simplified bookkeeping and greater security.
Advantages of using the Electronic Fund Transfer:
- It is easy and convenient.
- It is fast and secure.
- It is efficient and less expensive than paper cheque payments and collections.
Disadvantages of using the Electronic Fund Transfer:
- If you enter the target account number incorrectly, there is no way to reverse the transaction since the bank would process the transaction under the belief that the information you provided is accurate.
- Once an amount is transferred, the bank cannot reverse a transaction.
This facility operates in the same manner as telephone banking except you use the computer (internet) instead of the telephone to pay your utility bills (light, water and telephone) and transfer amounts from one account to another account at the same bank.
It is suited for people who have access to the internet. The programme is very user friendly and you can manage your accounts and pay your bills at your convenience and from the comfort of your home.
Benefits of Internet Banking:
- It is convenient because you can pay your bills on time and do not have to go to the utility company during business hours.
- It saves time as it eliminates waiting in line at the utility company.
- It is safer because you do not have to walk around with cash to pay your utility bills.
- It is cheaper since the transaction cost is less than the transportation cost to and from the utility company.
Point-of-Sale is a location where the transaction of payment for goods and services takes place. The point-of-sale machine allows you to charge your account by using your debit or credit card. By using this means of payment, the amount of cash you carry will be less, thus decreasing the risk of losing your cash.
Where can you use Point-of-Sale?
Point-of-sale can be used at merchants (supermarkets, Gas Stations, etc.) to pay for goods and services rather than paying by cash.
You will need to become acquainted with the merchants who offer the point-of-sale service.
Advantages of using Point-of-Sale:
- You do not have to walk around with cash to pay for goods and services.
- Saves time from joining a line to withdraw cash.
- Provides a record of the transaction (recorded on your bank statement).
Disadvantages of using Point-of-Sale:
- Takes a little more time to complete the transaction than when paying by cash.
- If the POS terminal malfunctions and you do not have cash on hand, you will not be able to make the purchase.
This facility allows customers to pay their utility bills (light, water and telephone), check the balance on their account, get a list of the last five transactions and transfer funds from one account to another at the same bank. All these transactions can be done in the comfort of one's home using only a touch-tone telephone. It takes about two minutes to make a payment.
The Bank links your specific utility bill account to your bank account. Using your telephone you can make payments on your utility bills 24 hours a day. The link between your bank account and the utility bill account is specific, therefore you cannot pay someone else's bill in error.
You are allowed to replay the transaction to ensure that you are paying the right amount before you send through the transaction. You will be given a transaction confirmation number in the event that there is a query.
Advantages of Telephone Banking:
It is convenient because you can pay your bills on time and do not have to go to the utility company during business hours.
It saves time as it eliminates waiting in line at the utility company.
It is safer because you do not have to walk around with cash to pay your utility bills.
It is cheaper since the transaction cost is less than the transportation cost to and from the utility company.
Disadvantages of Telephone Banking:
First-time users may find the system slightly difficult to use.
Instead of a receipt, you will receive a transaction reference number as proof that the payment was made.
A bank draft is a type of cheque where the payment is guaranteed to be available by the commercial bank issuing it. Typically, the commercial bank will review your account to see if sufficient funds are available for the bank draft to clear. Once it has been confirmed that sufficient funds are available, the bank effectively sets aside the funds from your account to be given out when the bank draft is used. The cost of a bank draft may vary among the commercial banks. Bank drafts are normally involved in transactions involving large sums of money and/or situations where trust can be an issue both locally and overseas. Suppose you are purchasing a new car from overseas or paying exam fees (e.g: to ACCA), sending a bank draft gives the assurance that you have enough money to purchase the vehicle or pay the exam fees and that your bank draft will not bounce.
There are several physical characteristics that distinguish bank drafts from cheques and other similar documents. These are:
The name of the person using the bank draft for payment does not appear on the document.
Although the person making the payment gets the bank draft, it is the recipient’s name which appears on the document.
There are added security measures such as a hologram on the bank draft.
In many cases, the document will be signed by two representatives of the bank rather than just one person.
The amount and the person to whom the bank draft is payable is specified therein and is payable on demand.
Benefits of using the Bank Draft:
The level of security is greater than with a personal cheque.
The bank draft is “drawn” on the bank itself rather than the person’s account.
It is a very useful instrument for settlement of debts.
There are some limitations to the bank draft since the banks retain the right to cancel the payment on a bank draft and take back the money from the recipient if the cheque proves to be counterfeit or fraudulent. This can cause confusion as the bank may tell the recipient the bank draft has cleared shortly after they pay it in, then come back later to say it has been found to be counterfeit. Therefore, some people accepting bank drafts as a means of paying for mail order goods may insist on waiting until the counterfeit deadline has passed before sending the goods.