Electronic funds transfer (EFT) is the electronic exchange, transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems. It is the lack of a physical representation of money, such as coins or paper or some other physical exchangeable commodity, which characterizes electronic fund transfer and electronic payments systems. An important requirement for direct transfers is that the payer’s account should contain a balance at least equal to the transaction amount at the time the transaction takes place. Otherwise, the transaction is repudiated. In other words, direct transfers do not create additional credit. An increasingly widespread example of direct transfers is electronic funds transfer at point of sale (POS), a process allowing instant payment directly from deposit balances using a debit card.
One of
the most widely-used EFT programs is
Direct
Deposit, in which payroll is deposited straight into an employee's
bank account, although EFT refers
to any transfer of funds initiated through an electronic terminal, including credit card, ATM,
Fedwire and point-of-sale (POS) transactions. It is used for both credit
transfers, such as payroll payments, and for
debit transfers, such as mortgage payments. EFT is gaining increasing popularity among the
various corporate bodies. Apart from that Cabinet Ministers’ salaries, salary of the officials of government
agencies like Ministry of Finance, Anti-
Corruption Commission
and
Salary
of Government
Primary
School Teachers
are being distributed through
EFT
at present.
Transactions are processed by the bank through the Automated
Clearing House (ACH) network, the secure transfer system that connects all financial institutions. For payments, funds are transferred electronically from one bank account to the billing company's bank, usually less than a day after the scheduled payment date.
The growing popularity of EFT for online bill payment
is paving the way for a paperless universe where checks, stamps,
envelopes, and paper bills are obsolete. The benefits
of EFT include reduced
administrative costs, increased efficiency, simplified bookkeeping, and greater security.
Electronic fund transfers have made rapid advances in recent years, and their application
has
become increasingly widespread. As the cost of computers and electronic communications continues to fall, and the volume of
electronic payments continues
to increase,
the marginal
cost of electronic
payments
will fall
compared
to the
marginal cost
of cash-based transactions. This will further fuel the acceleration of electronic payments systems. To the extent that cashless means of payment reduce transaction costs, resource savings will be realized which will, over time, add to national
wealth. Resources
released from the production and
distribution of currency
become
available
for more
productive uses.
In EFT terminology, Originator and Receiver refer to the participants that initiate and receive the EFT entries rather than
the funds. Unlike a check, which is always a debit instrument, an EFT entry may either be a credit or a debit entry. By
examining what happens to the receiver’s account,
one can distinguish
between an EFT Credit and EFT Debit transaction. If the receiver’s account is debited, then the entry is an EFT debit. If the receiver’s account is credited, then the entry is
an EFT credit. Conversely, the offset of an EFT debit is a credit to the originator’s account and the offset to an EFT credit is a debit to the Originator’s account.
A typical
transaction as it
flows through the
EFT Network might follow the path described below:
The Originator and its
bank (OB) determine by agreement that how the information will be delivered
from the originator to the OB. Ideally, the originating bank or originator
would format the data in accordance with the BEFTN prescribed format and
transmit the information to the OB via a communication line.
The OB
generally removes “on‐us”
entries (if any)
and transmits the remaining entries to the BEFTN within the
preset timeline. An
“on‐us” transaction is one in which the Receiver and the Originator both have
accounts at the same bank. Therefore, the transaction needs not to be sent
through BEFTN but instead may be simply retained by the bank and posted to the
appropriate account.
The BEFTN will sort the entries by Receiving Bank (RB) routing number and transmit the payment information to the appropriate RB for posting.
On settlement
date/time, BEFTN will calculate the net settlement figure for each
participating bank and the settlement will take place at the books of accounts
of Bangladesh Bank.
