written by | June 7, 2022

Electronic Fund Transfer, EFT – Definition and Its Importance

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Table of Content


An electronic funds transfer (EFT) is a method of sending money via the internet. Electronic money transfers can be made between the same bank or between separate banks, and they can be done via a variety of payment systems. A person or a business can start an EFT, and it usually doesn't need much more than a decent bank account.

Did You know?

When transferring money from one bank to another, banks charge a fee for NEFT, and they could charge anything from ₹2.50 to ₹25. On the other hand, the service fee is determined by the amount being transferred.

Also Read: UPI Payment Apps: List of Apps That Allow UPI Payments

What are EFTs (Electronic Fund Transfers)?

EFTs work by using electronic signals generated by the sender when transmitting money to the receiver. The signals to commence and continue the payment are received instantly by the networks, servers, and payment terminals. Many parties can be the recipient and sender, such as employers to their employees, sellers to customers, retailers, and so on.

EFTs are popular because they are easy to use while providing transaction security. They're also quite quick, with funds being credited practically immediately or within a few days. For utility payments, ATM and card payments, or online transactions via proper authorisation, EFT is feasible by beginning a digital cheque — commonly between vendors and merchants during the purchase, direct deposit, and phone payments. 

EFTs are secure because they are encrypted with 128-bit signals. As a result, they are safe and quick, as well as cost-effective for enterprises. It is simple to set up, requiring simply a bank account and sufficient paperwork to allow transfers at the time of registration. There is no need to provide paperwork or be physically present during the transfer.

How do Electronic Fund Transfers Work?

In most EFT transfers, there are two parties involved: the sender and the recipient of payments. When the sender makes a transfer, the EFT payment process begins. Payment requests are routed through several digital networks when they originate from a payment terminal on the internet. A request is sent from the sender's bank to the receiver's bank. The clearance period is the time it takes for most payment cycles to be completed.

Senders might range from corporations to individuals. They could pay a vendor, a service provider, or an employee. Workers, network operators, product suppliers, dealers, and utility businesses, for example, are examples of beneficiaries.

For Transactions in India

EFT can be made to any bank account throughout the country. For example, you can use the IFSC Code to transfer money to an account at a certain HDFC Bank branch in New Delhi.

To determine the best method of transferring money online, you must examine elements such as transfer limit, time, and cost.

You can make an electronic fund transfer from your account using one of the following methods:

  • Initiate a transaction between your two linked bank accounts.
  • Transact between accounts held by the same bank.
  • To transmit money to a different bank's account, use NEFT.
  • RTGS is a method of transferring funds from one bank to another.
  • To transfer money between accounts, use IMPS.

For International Payments

EFT is assisting firms in succeeding as e-commerce grows around the world. Because EFT technology can collect payments worldwide, it allows firms to reach out to a global audience. EFT is a simple, convenient, and cost-effective method for overseas payments. As a result, overseas payments improve a company's earning potential. It expands the reach of small and large businesses alike. It just gives all of them the same possibilities, from start-ups to giant enterprises. EFT has substantially benefited the Fintech business.

International payments follow the same principles as domestic EFT payments. However, they are subject to a few exceptions. Fees and currency rates for international transactions are calculated based on the transaction amounts.

Electronic Fund Transfer Process

A few key partners manage the online financial transfer using the electronic fund transfer system. These include the beneficiary bank's sending bank, sending service branch, sending EFT centre, receiving EFT centre, and receiving service branch. The steps below outline how EFT works.

  • Your bank receives a fund transfer request.
  • All these money transfer requests are consolidated and sent to the service branch by the sending bank.
  • The EFT - the National Clearing Cell (NCC), which is an automatic clearinghouse – receives data from the service branch.
  • The EFT data is sent from the NCC to some other NCC on the receiving end.
  • The data is processed by the receiving NCC and forwarded to the beneficiary bank.
  • The beneficiary account is credited the same business day the bank branch receives the transfer request.

Also Read: Difference Between NEFT and RTGS

What Are the Benefits of EFT Payments?

Now that we've covered the meaning of EFT in banking let's look at some of its most notable advantages. The most obvious ones are as follows:

Availability around the clock

You can make an EFT request anytime, day or night. If services are interrupted, the RBI notifies banks and customers.

Transfer in Real-Time

EFT (Electronic Funds Transfer) allows users to send money to beneficiary accounts in real-time.

Universal accessibility

The process of sending funds to any part of the country has gotten much easier now that most banks are EFT-enabled.

Costless

The RBI does not charge bank fees for electronic funds transfers. Bankers, too, pass on this advantage to their consumers for online EFT services, albeit they may levy a small fee for offline EFT payments.

Versatile payment System

EFT is a versatile payment system that may be used for a variety of purposes, including paying credit card bills and loan EMIs, initiating inbound international remittances, and so on.

Types of Electronic Fund Transfer

The different types of EFTs are described below:

NEFT

  • The full form of NEFT is The National Electronic Fund Transfer. It is the most straightforward and popular method of funds transfer from one bank to another.
  • Any NEFT transaction requires only two pieces of information: the account number and the destination account's IFSC Code.
  • There is no limit to the amount of money that can be transmitted via NEFT. Individual banks, on the other hand, may set a limit.

Real-Time Gross Settlement (RTGS)

  • The minimum payment and how it transfers to the target account differ in a Real-Time Gross Settlement, or RTGS, which is essentially identical to NEFT.
  • This can be used to transfer more than two people. The maximum amount is unlimited. An RTGS money transfer takes place in real-time. The bank of the person receiving the funds has 30 minutes to credit it to their account.

Immediate Payment System, i.e. IMPS

  • Immediate Payment Service, or IMPs, is a service that allows you to send money instantly. IMPS is a combination of NEFT and RTGS.
  • The transaction limit has been set very low to avoid fraud complaints. You only need the destination account holder's IMPS id (MMID) and mobile number to make an IMPS transfer.

Unified Payment Interface, i.e. UPI

  • A Unified Payments Interface (UPI) is a real-time payment system that uses VPA to allow transactions to be completed on any smartphone (Virtual Payment Address).
  • For money transfers using UPI, no bank account information is required. Only a mobile number or name is required, and transactions can be completed at any time. Apps that support UPI allow transfers of up to ₹1 lakh.

Transaction Through ATM

EFT systems are used to power all ATM transactions. As a result, every time you use an ATM, you engage in electronic fund transmission. This involves taking money from an ATM, transferring monies between accounts, and depositing money into an account.

Are EFT payments safe?

In comparison to conventional payment methods, EFT payments are safe. While sending money over the internet carries some risk, EFT is safer than traditional payment methods such as physical cheques or cash. Involving trusted partners is the best method to ensure a tamper-proof EFT. Working with dependable third-party businesses makes it easier to manage EFT for your own company.

Conclusion

Every transaction begins with one person handing over money to another. E-commerce was on the emergence before the pandemic. Digital payment acceptance has accelerated since the COVID-19 outbreak. It has become the most common approach to transacting today and will continue to be so in the future. Businesses large and small are reaping the benefits of electronic funds transfers as more customers become tech-savvy (EFT). Sellers and business owners must understand how electronic money transfers work to meet the growing demand. The above article provides depth analysis of the electronic fund transfer, types of EFTs, NEFT, IMPS, RTGS, UPI transfer, how EFTs work, benefits of EFT, etc. 

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FAQs

Q: What are the benefits of electronic fund transfer?

Ans:

Digital payment solutions have numerous advantages, including:

  • Convenience
  • Tracking expenditures with a Transactions Record
  • Theft, damage, and other risks are reduced.

Q: What are the hours of operation for NEFT?

Ans:

The NEFT system is available 24 hours a day, seven days a week, on all days of the year. NEFT is currently running in half-hourly batches throughout the day. If NEFT is unavailable for whatever reason, RBI will send an appropriate notification to all system participants.

Q: Can someone who does not have a bank account utilise the NEFT system to send money?

Ans:

Yes, a person without a bank account can send money to a recipient who has a bank account with another NEFT member bank using NEFT. It can be done by depositing cash at any bank's NEFT-enabled branch and providing extra information such as a complete address, phone number, and so on. Cash remittances of this kind shall be limited to a maximum of ₹50,000 per transaction.

Q: Is there a limit to the amount of money that can be sent through the NEFT system?

Ans:

No, the RBI does not put any limits on financial transfers through the NEFT mechanism. However, with its board's agreement, banks may set amount limitations based on their risk judgment.

Q: Who is eligible to use the NEFT system for fund transfers and receipts?

Ans:

Individuals, firms, and corporations with accounts at any member bank that participates in the NEFT system can electronically transfer funds to any other individual, firm, or corporation with an account at any other NEFT-accepting bank in the country.

Q: What are the different types of electronic fund transfers?

Ans:

RTGS, NEFT, and IMPS are examples of different types of electronic fund transfer.

Q: What is an Electronic Funds transfer?

Ans:

RBI EFT is a scheme created by the Reserve Bank of India (RBI) to assist banks in providing money transfer services to their customers from any bank branch to any other bank branch in locations where EFT services are available.

Q: Is there any limit on electronic fund transfer?

Ans:

There is no limit on individual transactions.

Q: Are there any processing charges/service charges on electronic fund transfers?

Ans:

RBI waives processing charges on electronic fund transfers; however, banks have discretion in levying service charges.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.