What's an electronic funds transfer (EFT)? How they work, its benefits, and types

Key takeaways:

• Electronic funds transfers (EFTs) allow businesses to send and receive payments electronically.

• Wire transfers are a type of Electronic Funds Transfer (EFT) designed to transfer funds between accounts internationally, quickly and securely.

• In Canada, domestic EFTs are processed through Automated Funds Transfer (AFT), a secure and widely used system for direct deposits, bill payments, and recurring transactions.

From paying suppliers and employees to receiving customer payments, money constantly moves in and out of your business. Most of these payment transactions are likely made through electronic fund transfers (EFTs).

Globally, EFTs are the primary source of sending and receiving payments. By 2027, cross-border payments, such as EFTs, could reach $250 trillion in the US.¹ To better understand how EFTs work and their benefits, we’ll explore the different types and how using cross-border transfers can benefit your business.

What's an EFT?

An electronic funds transfer (EFT) is a digital method for moving money from one bank account to another quickly and securely, both domestically and internationally. The term encompasses a wide range of electronic transactions, including deposits, payments, and debits, completed without needing paper documents.

Almost all transactions today are EFTs, such as AFT deposits, wire transfers, and credit card payments. Each has its own characteristics, but all allow you to move money quickly and securely, without the need for physical documents.

EFT Payment Examples

EFT payments are a widely used and accepted method for completing basic business transactions. From paying vendors to contributing to employee retirement accounts, a business can use EFTs to send or receive payments for almost any B2B payments. Here are some of the most common uses for EFT payments.

• Paying suppliers

• Settling vendor invoices

• Accepting customer payments

• Issuing payroll

• Paying utility bills

• Making charitable donations

• Paying taxes

• Issuing refunds

Benefits of electronic fund transfers (EFTs) for businesses

You can benefit from using electronic fund transfers over manual or paper-based payments in several ways. Here are the five key benefits of electronic fund transfers for businesses.

• Speed and convenience: You can initiate an EFT in a few minutes wherever you are, and you can also automate recurring payments.

• Cost-effectiveness: EFTs have lower transaction fees and reduce the costs associated with manual handling and reconciliation.

• Improved security: EFT transactions are less prone to theft, loss, or forgery, and transactions are encrypted.

• Accessibility: You can facilitate international payments and global commerce more easily than with paper cheques.

• Automation: You can set up recurring payments and deposits, saving your business time and money.

While EFTs have many benefits, carefully selecting the right type of electronic fund transfers can help you streamline your operations and achieve significant cost savings.

Types of EFTs 

Electronic fund transfers are an umbrella term covering a wide range of transaction types. Below is a summary of some of the most common EFTs.

Domestic bank transfers

Any transfer of funds between two bank accounts in the same country is considered a domestic transfer. Domestic transfers are processed through regional networks, such as Canada’s AFT system, or wire transfers handled by financial institutions and SWIFT.

Domestic transfers are generally also less expensive, depending on the bank and type of transfer. Also, because domestic transfers are electronic fund transfers between local bank accounts, the transfer can often be completed within 1–3 business days, and sometimes even the same day. Many international businesses often open local accounts to take advantage of the cost and speed benefits of domestic transfers.

Wire transfers

A wire transfer is a type of electronic fund transfer that businesses use to transfer money both domestically and internationally. They're a quick and secure method, making them particularly useful for large or urgent transactions. However, this speed comes at a cost, with fees ranging from US$10 to US$50 per outgoing transfer.

Wire transfers use different networks, depending on the country of origin and the recipient. For instance, wire transfers between US accounts are often processed through the Fedwire Network, while the SWIFT network handles transfers between a US account and an international one.

ATM transactions 

Even though you may be physically handling cash, all transactions made at an ATM are considered electronic fund transfers. This includes withdrawals, deposits, and transfers to and from accounts. Once you enter your PIN, the card issuer’s network will verify your information and process the transaction. Using an ATM allows you to save time compared to having a bank teller manually process your transactions, and it is typically free of charge if you use an in-network ATM.

Debit and credit cards

Whenever customers use a credit card or debit card to make a purchase or pay a bill, the action is processed as an electronic funds transfer. Whether the transaction is in person or online, the transfer of money is completely electronic. For example, when making an online payment, a payment gateway captures your card information before sending it to the card’s payment processor to complete the transaction.

EFT vs. ACH vs. wire transfer: What’s the difference?

EFT (Electronic Fund Transfer), ACH (Automated Clearing House), and wire transfers are commonly confused because these terms are all related to digital money transfers, and they share some overlapping features. All three methods are used to move money from one account to another, which can lead to the assumption that they're the same.

The term EFT refers to any electronic transfer that is processed automatically, rather than manually. ACH and wire transfers are specific types of EFTs, each with its own unique features and processing requirements. Here’s a quick comparison of the key differences between wire transfers and ACH transactions.

While wire transfers are faster, more secure, and better suited for large, urgent, or international payments, they come with higher fees. ACH transfers, being more cost-effective, are ideal for smaller, regular transactions but are typically limited to US entities. However, local currency accounts are now increasingly accessible to overseas businesses. For example, a Canadian business can open a US dollar or euro account to pay suppliers in their local currencies and reduce conversion costs.

This extends beyond just a US dollar account. Financial providers are now enabling global businesses to open multiple local currency accounts without requiring local entities. Managing local currency accounts in the regions where you conduct frequent business can help you manage currency risk, reduce exchange fees, and enhance payment processing efficiency, making transactions smoother and more cost-effective.

This flexibility allows you to choose between wire transfers and domestic bank transfers, tailoring your payment method to the specific needs of each transaction. This helps you effectively balance speed, cost, security, and convenience.

How does an electronic funds transfer (EFT) work?

Electronic funds transfers can be used for various purposes, such as paying bills, transferring money between accounts, or receiving payments. Here’s how it typically works:

1. Transaction initiation – The sender initiates a transfer through an online portal, banking app, or point-of-sale device. For recurring automated payments, the sender’s bank initiates the payment.

2. Verification – Transaction information is verified and authenticated by the payment processor. This step may include verifying sufficient funds or requiring a PIN to proceed.

3. Processing – The bank processes the transfer request, sending an electronic message to the recipient’s bank. This message includes details to identify the recipient and the amount to be transferred.

4. Confirmation – The recipient’s bank receives the message and credits the recipient's account. The sender’s account is debited by the same amount. Once the transaction is complete, both the sender and recipient will receive notifications.

Depending on the EFT type, this process can take a few minutes or up to 5 days to finalize the transaction.

Scale your business with smarter cross-border transfers 

EFTs have transformed how businesses move money, and as your business grows, financial providers like Airwallex make managing cross-border payments easy.

Unlike other Business Accounts, Airwallex lets you choose different types of electronic fund transfers. It provides local and global transfer options to ensure the fastest and most cost-effective solution. You can send money to 150+ countries and regions in 60+ currencies.

Airwallex distinguishes itself by empowering businesses to operate like locals, collecting payments in preferred currencies, and spending held balances to minimize conversion costs.

With conveniences like Batch transfers and accounting integrations, Airwallex lets you manage payouts to multiple global recipients simultaneously, saving you time on reconciliation.

EFT Frequently Asked Questions

What is an EFT account?

An EFT account lets you send and receive electronic fund transfers. You can also see a record of your activity in your EFT account. Examples of EFT accounts include business accounts, credit cards, and savings accounts.

How long do EFT payments take to process?

The time it takes for a payment to process will depend on the type of electronic fund transfer (EFT) method used. Generally speaking, domestic bank transfers are typically the quickest, followed by card transactions, then wire transfers.

Do I have to offer EFT payments?

You should offer electronic fund transfers as a payment method. By not accepting EFT payments, you are limiting your customer base to local consumers only. Additionally, electronic fund transfers simplify reconciliation, as all transactions are recorded.

Are EFTs secure?

Yes, EFTs are secure. They utilize encryption and other security measures to safeguard financial data, making them a secure and reliable method for transferring funds.

What is an EFT payment?

An EFT payment, or electronic funds transfer, is a digital method of transferring money from one bank account to another. It includes transactions like direct deposits and wire transfers.