Guide to Electronic Funds Transfers

Sometimes known as non-paper financial transactions, electronic funds transfers, or EFTs, are a way of automatically passing money from one person or business to another electronically.

This guide covers what EFTs are, how they work, and resolving disputes.

What is an electronic funds transfer?

An Electronic Funds Transfer (EFT) is a financial transaction processed automatically through an electronic payment system. The transaction is entirely electronic, with no physical money changing hands. This makes them a useful method for sending money overseas as well as locally.

Banks are commonly used for electronic funds transfers, but online transfer companies are becoming an increasingly popular alternative due to their faster transaction speeds and lower transfer costs, making them a faster and cheaper money transfer options in general.

How does an electronic funds transfer work?

EFT payments rely on a computerized network that links different financial institutions together. These institutions, such as banks and money transfer companies, use this network to communicate with each other and make sure the necessary adjustments are made to the correct accounts. The SWIFT network is most commonly used for overseas transactions with banks, while European countries also use the SEPA network to transfer funds within Europe.

In most cases, local EFT payments are made using the Automated Clearing House (ACH), which supports transactions between bank accounts and ensures all electronic funds transfers happen correctly.

Money transfer providers work slightly differently. When you send money to a money transfer provider, that money won’t ever cross international borders. Instead, the provider will credit the same amount of money from one of their accounts in the receiving country directly to the recipient’s bank account, minus any fees and exchange rate markups.

What is the Electronic Funds Transfer Act?

The Electronic Funds Transfer Act provides protection for consumers using EFT transactions like debit card transactions, electronic withdrawals, transfers, and deposits. It was introduced in 1978 as a result of the increased use of ATMs.

The act allows you to challenge errors with transactions, have them corrected, and receive limited compensation where you’re not at fault. There’s also a provision which limits your liability in the case of a lost or stolen debit card.

As well as this, under the act, banks are required to make certain information available to you, including fees associated with transactions and limitations on withdrawals.

Services protected under the Electronic Funds Transfer Act

• Debit card transactions

• ACH systems

• Telephone bill-payment plans where periodic or recurring transfers are completed

• Online banking

• Electronic fund transfers overseas

Electronic Funds Transfer Act requirements for service providers

Any financial institution involved in electronic funds transfers need to disclose the following information to you:

• A summary of your liability for unauthorized transactions and transfers

• Contact information for the person(s) who you should tell about an unauthorized transaction on your account, alongside the procedure to report it and file a claim

• The types of transfers you can make, any fees associated with them, and any limitations that might exist

• A summary of your rights, including the right to receive periodic statements and point-of-sale purchase receipts

• A summary of their liability to you if they fail to make or stop certain transactions

• The circumstances under which they will share information with a third party concerning your bank account information and account activities

• A notice explaining how to report an error, request more information, and the deadline for filing the report

How do I dispute an electronic funds transfer?

The EFTA states that consumers may dispute an electronic funds transfer if they believe the transaction was fraudulent. Under the Act, you must report this transfer within 60 days of the transaction date. You may be asked to provide additional documentation regarding the issue; these need to be supplied within ten business days of the request.

When a dispute has been received, the financial institution has 45 days to investigate it, with an extended time frame allowed for new customer accounts. If the institution disagrees with your claim, they must give you an explanation as to why, and you may request any documents used in their investigation if you wish. If the institution determines that theft or a company error did occur, they must credit your account.

The EFTA limits consumer liability on lost or stolen debit or credit cards to $50 if the dispute is raised within 2 business days of an unauthorized transaction, raising to $500 at 3-59 days. If a lost or stolen card is reported before any unauthorized transactions are placed on it, you’re not liable for any charges at all.

What types of electronic funds transfer are there?

An electronic funds transfer is an umbrella term covering a variety of different paperless exchanges. Here’s a summary of the most common:

• Direct Deposits: A direct deposit transfers funds from one bank account to another on a recurring basis. They’re often used by businesses to pay salaries each month.

• Wire Transfers: Wire transfers are a quick and efficient way of sending a large amount of money. They’re generally used for large, one-off payments such as a deposit on a house.

• Automatic Teller Machine (ATM): ATMs allow you to transfer funds between your account and others, and withdraw cash. These transactions use an EFT payment to complete.

• Debit Cards: When you make a purchase or pay a monthly bill using your debit card, the funds are transferred from your account to the payee using an EFT payment.

• Electronic Checks: Electronic checks are similar to paper checks, but allow electronic payments.

• Pay-by-phone Systems: EFT payments can be initiated by phone, using pay-by-phone systems.

• Personal Computing Banking (Online Banking): One of the most common EFT payments, funds can be sent electronically using online banking.

How long does an EFT take?

The time it takes to send an EFT depends on the type of transfer being completed, the financial institution involved, and where the funds are being sent. Typically, an EFT can take anything from 1 to 4 business days to complete.

A bank EFT will usually only be processed on business days (Monday to Friday). If the request is made during the weekend or on a bank holiday, the bank will usually only begin processing the request on the next working day.

This time restriction generally only applies to banks and does not impact money transfer companies, as they are able to initiate the transfer the moment it’s requested. If you’re looking for a fast transfer, a money transfer provider is likely to be the better option.

How much does it cost to send an EFT payment?

Without the costs of paper and printing, EFT payments are usually cheaper than paper-based transactions, but processing fees will differ depending on the type of transaction, the destination, and the provider offering the transfer.

The Electronic Funds Transfer Act requires providers to disclose any fees they charge for transfers before they can be processed, so it’s a good idea to check these before requesting a transfer. These fees may come in the form of a flat rate, or a percentage of the amount transferred.

Transferring money overseas will usually cost more than transferring funds to a domestic bank account, with providers usually adding a margin to the exchange rate. Banks in particular can be quite expensive, with margins of anything between 3% and 6%.

Alternatively, you can transfer funds overseas using a specialist money transfer company. With lower overheads, they can charge less for their transfer services.

Sometimes, an EFT payment may be returned, usually due to either an error with the transfer details or insufficient funds in the sender’s bank account. If this occurs, your financial institution will not attempt to reprocess it.

As well as this, most financial institutions will still charge for EFT payments even if they do not complete successfully, provided they’re not at fault. It’s therefore very important to make sure everything is in place for the EFT payment to complete successfully before completing the request.

What are the pros and cons of electronic funds transfers?

Overall, there are more reasons to use EFT payments over physical transactions, but there are disadvantages to them too.

Are there alternatives to electronic funds transfers?

Cash and check transactions are still accepted in most banks and post offices, but the ease and speed of electronic transfers is increasing their popularity. Most international transfer providers don’t accept cash deposits.

Are electronic funds transfers safe?

While no payment system is completely free of risk, EFTs are considered to be more secure than paper based transactions using cash or paper checks. Some forms of EFT, like payments made through the ACH, are more secure than others.

Like with all financial transactions, it’s important to make sure you’re using a company that you know and trust, or come from a reliable recommendation. All transfer providers and banks recommended by MoneyTransfers.com are registered and fully regulated in their base country.

Safety measures in place

To help ensure the safety of your personal details and finances when processing EFTs, financial institutions implement data encryption to prevent unauthorized entities from accessing your information, and many payment systems such as debit card transactions require you to enter your Personal Identification Data (PID), which helps verify it is you using your card.

You can also put your own safety measures in place, such as regularly reviewing your bank statement for any unrecognized transactions, and reporting any potential issues or cases of fraud to your bank as soon as you spot them.

What’s a one-time EFT?

A one time EFT is a payment you initiate with a company once, so they don’t need to have your banking or debit card information on file. These are often things like debit and credit card payments.

Can you cancel an electronic funds transfer?

Once a transfer has been initiated, it usually can’t be canceled, so it’s important to make sure all the details imputed are correct before the transfer is requested.

However, if your EFT is not enacted immediately, such as a scheduled transfer, you can usually cancel it before the payment has started processing. This is also the case with EFTs scheduled to be processed on a regular basis. The notice period for canceling these payments can differ between institutions, but a common timeframe is three working days.

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