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.