What You Need To Know About Electronic Payments And Your Bank Accounts
May 12, 2021
There was a time not too long ago when cash and paper checks were your only options for shopping, paying bills, and fulfilling your other financial obligations. But no longer.
Today’s digital economy relies primarily upon electronic payments. Read on to learn about electronic payments, how they work, and the benefits they offer.
What is an EFT?
EFT stands for Electronic Funds Transfer. EFT is an all-embracing term for the process of electronically moving funds from one bank account directly to another using a computerized network.
A key feature of EFT payments is that they are automated and do not require the involvement of bank employees.
That said, EFT payments need at least two parties to work: a sender and a receiver. When the sender commits to transmit funds to the receiver, the payment goes through the appropriate electronic network and moves into the receiver’s account.
You can also send yourself money via EFT. You can make EFTs from one account at your financial institution to another account at that same institution, or you can make them between accounts held at different institutions.
For example, if you’ve used online banking to move money from your savings to your checking account, you’ve used EFT technology. And if you’ve used an app on your smartphone to send money to a friend to help pay the tab at a restaurant, you’ve also taken advantage of EFT technology.
EFT vs. ACH: What’s the difference?
As noted, EFT is actually an umbrella term covering many different types of electronic payments. One of the most popular of these is known as ACH. What is ACH, and how does it differ from EFT?
All ACH payments are EFT payments, but not all EFT payments are ACH payments. ACH payments are bank-to-bank electronic payments that pass through the Automated Clearing House (ACH) Network. This network processes over 20 billion transactions totaling more than $40 trillion every year. Many businesses use ACH to deposit paychecks directly into their employees’ bank accounts.
Speediness is one of the most significant differences between EFT and ACH payments. Before ACH transactions can be completed, they must be verified via a batching system. That process can take between one and four business days, depending on the banking institutions involved.
By contrast, many EFT transactions — such as a funds withdrawal from an ATM or debit card charge you make at your favorite coffee shop — are processed immediately.
What are wire transfers?
Wire transfers are another type of EFT payment that moves money quickly between financial institutions. These EFT transactions do not rely upon the ACH network managed by the National Automated Clearing House Association (NACHA). Instead, they use specific bank-to-bank networks such as the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or the Fedwire Funds Service.
Banks and bank customers most commonly use these networks for immediate-need or large-sum transfers. However, wire transfers come with fees ranging from between $20 and $100. To offset this surcharge, either the immediate need or the amount of the wire transfer should be significant.
What are peer-to-peer (P2P) electronic payments?
The ability to use technology to make payments to friends, relatives, colleagues, and vendors has grown exponentially in recent years. Mobile applications such as PayPal, Cash App, and Venmo make it extremely easy to send funds from person to person very quickly.
When you register to use one of these applications, you can link it to your debit card, bank account, or both. To send a payment, log into the app, enter the amount and the receiving party, confirm the transaction, and hit send. The money is on its way!
You can also use P2P payment platforms as a holding area for funds. Rather than transferring funds received into their bank accounts, users can leave money in the app and use it to make payments to others.
Some P2P apps even offer debit cards to their users, making it easier to access the funds held in the app platform.
Guaranty Bank & Trust customers have access to Guaranty Pay P2P via their smartphones. With Guaranty Pay P2P, you can send funds to anyone with a U.S. bank account with no daily limit on the number of payments you make.
What are the benefits of EFT transactions?
One great benefit of all types of electronic funds transfers is that they allow you to move money much more quickly than you could via a paper check. Whereas a paper check has to be mailed and processed by a billing department, you can make a nearly instant payment online or over the phone using EFT.
That means your account balances are updated in real-time, which can help you avoid overdrafts and the fees that often come with them.
Perhaps most importantly, EFT technology allows you to do business where and when you want. You can order groceries from your living room and tip the delivery driver with the tap of a screen. You can also set up automatic payments for your recurring bills and avoid late fees.
Should your small business use EFT payments?
Using EFT transactions for payroll and vendor payments can be beneficial to businesses. Specifically, using automated payments reduces paperwork, makes accounting processes more efficient, and ensures that both employees and vendors consistently receive their payments on time.
If you’re a small business owner, you can also give customers the option of making monthly payments to you online. Doing so can help eliminate any bottlenecks in your revenue stream.
Learn how Guaranty Bank & Trust’s Treasury Services leverage best-in-class EFT technology to help you optimize your business’ payment processing and cash management.
Are EFT payments safe?
To make an EFT transaction, you must divulge certain pieces of sensitive personal information to the business or organization with which you’re doing business. This information may include your bank account number, your bank’s routing number, your home address, and your phone number.
Providing this information to the wrong parties can be a recipe for disaster. However, as long as you remain vigilant and provide this information only to businesses and organizations you trust, your confidential information should be perfectly safe.
In contrast, when you pay by check, that check passes through many hands, giving just as many individuals the opportunity to gather your personal information and use it to commit fraud. EFT transactions make use of data encryption to reduce this risk.
Finally, Congress enacted the Electronic Fund Transfer Act (EFTA) in 1978. This legislation includes several important consumer protections.
- Consumers have 60 days to report any unauthorized transactions to their financial institution.
- If you report your lost or stolen debit card within two days, the EFTA limits your liability for unauthorized transactions to $50.
- Your bank is required to put daily withdrawal limits on your debit card to protect you from excessive and potentially unauthorized account activity.
- If your bank violates EFTA guidelines, you can potentially recoup your damages in court.
All that said, it’s essential that you carefully review your bank statements each month, checking for errors or suspicious activity. If you find any, report them to your financial institution immediately.
What electronic services does Guaranty Bank & Trust offer?
Guaranty Bank &Trust offers its customers a vast array of electronic services. These include online banking, online bill pay, fraud protection, e-statements, direct deposit, debit and credit cards, and mobile apps (available at either the Apple App Store or Google Play) that enable you to bank local no matter where you are.
Opening a Guaranty savings or checking account online takes as little as five minutes. Get started today, or book a video appointment with one of our friendly, knowledgeable bankers to learn how we can help you more effectively manage — and grow — your finances.