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Electronic Funds Transfer on Internet

Electronic funds transfer or EFT is the electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems. 

Electronic Funds Transfer (EFT) provides an alternative method of paying for goods and services and making a wide range of financial transactions that will increasingly challenge currency and checks as a dominant payment system. 

EFT is a cluster of technologies that allow the execution of financial transactions by electronic messages without the necessity of a paper instrument of exchange. The messages substitute for an exchange of currency or a signed check. The term EFT has also come to include electronic transfer of information critical to such transactions without an immediate transfer of funds; e.g., credit authorization or check validation by telecommunication. 

Some EFT systems are used for transfers between large organizations or institutions. For example, Automated Clearinghouses (ACHSS) receive, sort, and re-distribute financial information that instructs participating banks to debit and credit accounts at a specified time. ACH services are used by some organizations for direct deposit of wages to employee accounts in many different banks.

Other EFT systems provide services to and for individual consumers. Automated Teller Machines (ATMS) are now widely available in many communities for making deposits or withdrawing funds 24 hours a day. Other consumer-oriented EFT technologies include point-of-sale terminals and telephone bill payer systems. Most EFT systems, involve computers, telecommunication links, and automated data files. 

Types of Transactions in EFT
 In EFT, a number of transaction types may be performed:
1) Sale: The cardholder pays or return or service.
 
2) Refund: A merchant refunds an earlier payment made by the cardholder.
 
3) Withdrawal: The cardholder withdraws funds from his account, e.g., from an ATM. The term cash advance may also be used, typically, when the funds are advanced by a merchant rather than at an ATM.
 
4) Deposit: The cardholder deposits funds to his own account (typically at an ATM). 5) Cashback: The cardholder withdraws funds from his own account at the same time as making a purchase. 6) Inter-Account Transfer: Transferring funds between linked accounts belonging to the same cardholder.

7) Payment: Transferring funds to a third party account. 
 
8) Inquiry: A transaction without financial impact, e.g., balance inquiry, available funds inquiry, linked accounts inquiry, or request for a statement of recent transactions on the account. 
 
9) Administrative: This covers a variety of non-financial transactions including Personal Identification Number (PIN) change.
 
Working of Electronic Fund Transfer (EFT) 

Figure 3.9 has depicted the flow of electronic data for a transaction. It shows transfer of data alone and not the shipment of item to the firm, or payment to the supplier by the firm. It is because a physical item cannot be shipped online by electronic means. Also the currencies (coins or paper notes) cannot be transferred physically, online. However, the products such as software or a video in trading can be transferred electronically.


Thus in above cases, we see that a data or several data represent money. When a data representing certain amount of money is transmitted over a computer network, it is called Electronic Fund Transfer (EFT). The method of EFT may be used by firms, organizations, and the individuals. 

Common Uses of EFT 

1) Payroll cheques can be deposited in bank accounts. 

2) Money can be credited from bank account. 

3) Electricity bill, Nagar Nigam bill, etc., can be deposited in appropriate accounts. 

4) Income tax, sales tax, etc., can be credited to respective accounts. 

5) School fee can be deposited in school's fund. 

6) Funds transfer from head office of a company can be done to its subsidiary branch offices.

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