EFT Payment: What Is It and How Does It Work

  • Accracy
  • 26th Nov, 2023

If you're a business owner, you've likely heard of EFT payments. But what exactly are they? Simply put, EFT (Electronic Funds Transfer) is a system that allows money to be transferred electronically from one bank account to another. It's like the digital version of writing a check or handing over a pile of cash. From paying bills online to direct deposit of employee salaries, EFT can be seen in various forms.

EFT Payment: What Is It and How Does It Work

A brief look at the evolution of EFT

But what exactly is EFT and when did it start? The concept of Electronic Funds Transfer (EFT) was officially introduced back in the 1960s by the United States Federal Reserve Bank.

EFT, or Electronic Funds Transfer, has been a standard in the world of finance for decades. The system was inaugurated in the 1960s by the United States Federal Reserve Bank. The goal was to digitize the monetary system and make transactions quicker, safer, and more efficient.

The best part is, it's quick, efficient, and safe. Now let's delve a bit deeper and see how this system works, shall we?

How EFT payment works?

Here's how EFT payments work, broken down in a friendly, accessible way:

  1. Initiation: The payer (you, the business owner) initiates the EFT payment through your bank or a payment processor.
  2. Verification: Your bank or payment processor verifies that you have enough funds for the payment.
  3. Transfer: The funds are sent electronically to the recipient's bank.
  4. Confirmation: Both you and the recipient get confirmation that the transaction was successful.

This whole process can take anywhere from a few minutes to a few days, depending on the banks and payment processors involved. But the beauty of it is that it's all done electronically, keeping things speedy and efficient.

In addition to being convenient, EFT payments are also secure. They use encryption and other security measures to protect your financial information. So you can rest easy knowing your money is safe as it travels from point A to point B.

The benefits of EFT payment

Think about it, business owners. No more stacks of paper checks to handle or deposit. No more worrying about lost or stolen checks. EFT payments, or Electronic Funds Transfers, simplify the entire payment process, creating a more efficient and secure system. It's a win-win for businesses and customers alike.

Let's break it down with a practical example. Imagine you're running a busy online store. With EFT payments:

  • Time is saved: Instead of waiting for checks to arrive by mail, funds are transferred directly into your bank account. You can focus more on what matters: Managing and growing your business.
  • Security is increased: You don't have to worry about lost or stolen checks anymore. EFT payments are encrypted, reducing the risk of fraud.
  • Costs are cut: EFT payments eliminate the need for paper checks and postage, saving you money in the long run.

And that's just the tip of the iceberg. EFT payments can revolutionize the way you do business, making transactions quicker, safer, and more convenient. It's no wonder why more and more businesses are jumping on the EFT bandwagon.

Different types of EFT payment

So, you're curious about the different types of Electronic Funds Transfer (EFT) payments? Well, you've come to the right place. Essentially, EFT payments come in several flavors, each tailored to suit a variety of financial needs and scenarios.

  • Direct Deposit: This is the most widely known form of EFT. It's what your employer probably uses to deposit your paycheck directly into your bank account. Quick, easy, and no paper checks to lose.
  • Wire Transfers: These are real-time EFT transactions. They are commonly used for high-value or time-sensitive transfers, both domestically and internationally.
  • ATM Transactions: Each time you withdraw cash, make a deposit, or transfer funds at an ATM, you're using EFT.
  • Electronic Checks: Also known as e-checks, these are a form of EFT where money is electronically withdrawn from the payer's checking account, transformed into an electronic message, and then deposited into the payee's account.

There are others too, like Debit Card Transactions, Electronic Benefits Transfer (EBT), and Online Bill Pay, which allow you to send funds digitally to businesses or individuals. As you see, EFT spans a wide range of transactions, making it a versatile tool in the digital payments landscape.

Setting up EFT payment for your business

Picture this - you're a small business owner, let's say you run a bustling bakery in the heart of San Francisco. You want to streamline your payment processes and reduce the hassle of handling cash. EFT payment may just be your ticket to a smoother operation. Here's how you can get started.

First things first, you'll want to establish a relationship with a bank that offers EFT services. Discuss your needs with them, and make sure you understand any fees associated. Once you've chosen a bank, you'll need to set up a Merchant Account to handle these transactions.

  • Step 1: Approach your preferred bank and set up a Merchant Account.
  • Step 2: Familiarize yourself with the terms and conditions, including any transaction fees.

Next, you'll need to integrate this system into your business operations. Depending on your setup, you may need to acquire EFT processing software or hire a third-party processing company. These services will help you manage transactions, monitor for fraudulent activity, and keep the process running smoothly. So, our bakery owner would simply input the customer's information into the system, enter the sale amount, and voila - a fresh batch of cinnamon rolls is sold, and the funds are transferred electronically.

  • Step 3: Implement an EFT processing system - either through software or a third-party company.
  • Step 4: Start processing transactions. Just enter the necessary information, and you're in business!

Remember: Like any business decision, it's important to do your research and ensure that EFT payment is the right fit for your company. Yes, it might take a little time and investment upfront, but the ease of transactions could be well worth it!

Understanding EFT security measures

Let's chat about securing EFT transactions - a crucial step that shouldn't be overlooked. Implementing robust security measures helps to shield your business against potential fraud and keeps your customer's bank information safe.

In the interest of EFT security, here are some steps you should consider:

  • End-to-end encryption: This involves encoding data to ensure only authorized parties can access it.
  • Two-factor authentication (2FA): A method that requires two different types of identification before a transaction can be approved.
  • Tokenization: Involves replacing sensitive data with unique identification symbols that retain all essential information without compromising security.

Also, always keep your systems updated with the latest security patches and educate your employees about potential phishing scams.

Common misconceptions about EFT payment

Many business owners are under the impression that Electronic Funds Transfer (EFT) is a complex and tedious payment method. However, the reality is quite the contrary. EFT payments are secure, convenient, and fast.

Another misconception is that EFT payments expose businesses to higher levels of risk. While no payment method is entirely risk-free, EFT payments are generally safer than checks, as they reduce the risk of fraud and theft.

In fact, EFT reduces the number of intermediaries, which in turn minimizes the risk of fraud.

Lastly, some business owners mistakenly believe that EFT payments are expensive. While there might be some initial setup costs, in the long run, EFT payments can be cost-effective, saving your business time and money.

EFT payment vs. other payment methods

Let's throw some light on Electronic Funds Transfer (EFT) and how it stacks up against other payment methods, for instance, Automated Clearing House (ACH) transfers. EFT payments and ACH transfers are often used interchangeably, but there are some key differences to note.

EFT Payments: These are digital payments that move funds directly from one bank account to another without the use of physical checks. They're quick, secure, and eliminate the need for manual processing or paper trails.

Note: EFT encompasses several types of financial transactions like direct deposit, ATMs, electronic checks, and card transactions.

On the flip side, we have:

ACH Transfers: A subtype of EFT, ACH transfers, are batch-processed, meaning transactions are grouped together and processed at specific intervals throughout the day. This can sometimes lead to slower transaction times compared to EFT payments.

  EFT Payments ACH Transfers
Speed Fast, often immediate Can take 2-3 business days
Processing Individual payments Batch-processed
Transactions Includes a variety of transactions Primarily direct deposits and payments

So, although EFT payments and ACH transfers are different, they're both effective ways to move money electronically. The best choice depends on your specific needs, whether it be speed, type of transaction, or otherwise.

Popular EFT payments providers:

Electronic Funds Transfer (EFT) payments have become a go-to for businesses globally. Thanks to their efficiency and speed, many payment providers offer this service. Let's dive into three popular EFT payment providers and weigh their pros and cons.

1. PayPal:


  • Easy to set up and use.
  • Secure and trusted by many users worldwide.
  • Allows international transactions.


  • Fees can add up, especially for international transfers.
  • Some clients may not be comfortable using PayPal.

2. Stripe:


  • A robust API that integrates smoothly with many platforms.
  • Offers a wide array of payment options.


  • Has a learning curve, especially for non-tech savvy users.
  • Higher fees for small businesses.

3. Square:


  • Great for mobile and in-person payments.
  • Flat-rate pricing is simple and straightforward.


  • Not ideal for high-risk businesses.
  • Customer service can be hit or miss.

Choosing the right EFT payments provider depends on your business needs and customer preferences. Make sure to take into consideration the pros and cons of each provider before making your decision.

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