Different Methods of Electronic Funds Transfer

Electronics fund transfer is a method of payment where the money transfer between financial institutions takes place electronically.

The term is used for a number of different concepts

• Cardholder- initiated transactions: In this a cardholder makes use of a payment card like a credit or a debit card.
• Direct deposit payroll payments: In this payments are made by business establishments to its employees probably through a payroll services company.
• Direct debit payments: Here payments are made by the customer to a business establishment; the transaction takes place with the customer’s permission.
• Electronic bill payment: This is done through online banking and it could be delivered by EFT or a paper cheque.
• Transactions involving stored value of electronic money, possibly in a private currency.
• Wire transfer through an international banking network, it generally charges a high fee.
• Electronic Benefit Transfer which allows state governments to provide financial and material benefits to authorized recipients using a plastic debit card.

Card Based EFT

A card based EFT could be initiated when a payment card like a credit or a debit card is used. This could take place at an ATM (Automated Teller Machine) or POS (Point of Sale.) Alternatively it could take place when the card is not present, which covers cards used for mail order, telephone order and internet purchases.

EFT Transaction Types

The different transaction types include

1. Sale- Here the cardholder pays for the purchase or service.
2. Refund- Here a trader refunds an earlier payment made by a cardholder.
3. Withdrawal- Here the cardholder withdraws money from his account like from an ATM. The term Cash advance could also be used instead of withdrawal especially when the funds are advanced by a merchant rather than at an ATM.
4. Deposit- Here a cardholder deposits money in his own account usually at an ATM.
5. Cashback- Here a cardholder withdraws money from his account while making a purchase.
6. Inter account transfer- Here transferring of funds between linked accounts belonging to the same cardholder takes place.
7. Payment- This is transferring the money to a third party account.
8. Enquiry- This is a transaction which is for enquiring only, like it could be for a balance enquiry or available funds enquiry or linked accounts enquiry or request for a statement of recent transactions on the account. Here no financial transaction takes place.
9. E top up- Here a cardholder uses a device (typically POS or ATM) to add funds (top-up) to their pre-paid mobile phone.
10. Mini statement- Here a cardholder uses a device such as an ATM to get details regarding the recent transactions of his account.
11. Administrative- Here a number of non financial transactions which are covered. A typical example would be like changing the PIN.

It should be kept in mind that the transactions types offered are different on each terminal. Thus the transactions offered by an ATM would be different from those offered by a POS terminal.

EFT Authorisation

For a smooth EFT transaction, communication between a number of parties is required. When a card is used at a merchant or ATM, the transaction is first routed to an acquirer. After this it is routed to the issuer where the cardholder's account is held. This is done via a number of networks.

A transaction could be authorized offline by any of the entities through a stand-in agreement. A stand-in agreement could be used when a communication link is not available or it could be done simply to save communication cost or time.

Stand-in is subject to the transaction amount being below agreed limits, known as floor limits. This limit is calculated on the risk of authorizing a transaction offline and hence is different for each merchant and card type. Offline transactions may be subject to other security checks such as checking the card number against a 'hotcard' (stolen card) list, velocity checks (limiting the number of offline transactions allowed by a cardholder) and random online authorisation.

Authentication in EFT Transactions

EFT transactions are generally accompanied by means to confirm the card and the card holder. This can be done by the merchant who could manually check the card holder’s signature. It could also be done by checking the card holder’s PIN number online.

Other information used for verification could be requested from the cardholder (like the card holder’s address) or it could be something which is not visible to the cardholder (like the magnetic stripe data).

EMV cards are smartcard based payment cards in which the smartcard technology allows a number of improved verification procedures.

What is EFTPOS?

EFTPOS stands for Electronic Funds Transfer at Point of Sale. It is an Australian and New Zealand electronic processing system for credit cards, debit cards and charge cards. European banks and card companies also sometimes refer to "EFTPOS" as the system used for processing card transactions through terminals on points of sale.