What Is Electronic Fund Transfer? Process, Benefits, and Charges

For most modern businesses, the ability to move funds faster is no longer just convenience, but a necessity. This is why Electronic Fund Transfer (EFT) forms the backbone of modern banking. 

EFT systems have completely transformed how companies and individuals send, receive, and manage funds by shifting to digital transfers from manual paperwork, physical delivery, and long waiting periods. 

This evolution has redefined banking efficiency, cross-border settlements, and financial transparency across central banks and users.

An electronic fund transfer (EFT) refers to the digital movement of funds between bank accounts. Also known as direct deposit, EFT does not require any manual input or paper-based currency like cash or cheques. 

According to the Federal Reserve, EFT includes transactions processed digitally through: 

• Automated clearing systems 
• Payment gateways 
• Mobile apps 
• Online banking 
• Payment gateways 

As EFTs do not require any mechanical intervention, they have become an efficient mode of money transfer- especially for businesses and individuals relying on secure, fast, and round-the-clock transactions. 

How does EFT work? 

Since EFT completely eliminates the need for paper, money is transferred through safe networks like SWIFT or ACH. Anyone with a bank account can use EFT to transfer money; it usually involves the following process: 

1. Initiation: A business or an individual authorizes the transaction through online banking, digital apps, or ATM 
2. Authentication: The transaction is then verified by the sending bank as it checks for sufficient funds 
3. Routing and Clearing: A secure network like ACH/SWIFT sends a request that connects financial organisations 
4. Settlement: The receiving bank collects the funds and transfers it to the recipient’s account 
5. Confirmation: When the transaction is confirmed, a transaction ID is created for documentation.

Any fund transfer that’s processed digitally is known as EFT, but the term encompasses multiple types of transfers that are used based on specific individual and business needs. Each of them are explained below: 

1. NEFT 

National electronic funds transfer (NEFT) is one of the most widely used electronic payment transfer systems as it enables one-to-one transactions between bank accounts in India. It is also regulated by the RBI. NEFT is: 

• Settled in half-hourly batches 
• Operating hours are 24x7x365, allowing transfers at all times 
• Ideal for retail and business payments as there is no maximum or minimum limit 

2. RTGS 

Real-time gross settlement (RTGS) is designed for transactions that require speed and high-value interbank settlement, which is why it forms an integral part of the modern business ecosystem. RTGS is ideal for: 

• Transactions that are processed one-by-one upon receipt, not in batches 
• High-value transactions as minimum transaction limit is 2,00,000/-, with no maximum cap 
• Immediate and fast transfers as beneficiaries usually receive payments in minutes 

3. IMPS 

Immediate Payment Service (IMPS) is a real-time interbank payment system that is managed by National Payments Corporation of India, which also handles Unified Payment Interface and Rupay. IMPS provides the following features: 

• Instant 24/7 transfers all year round, even on public holidays 
• Instant transfers through mobile first payment infrastructure
• Typically used for medium-low value urgent transactions 

4. ACH/NACH

While payment systems like UPI, IMPS power instant, real-time transfers, bulk transfers depend on Automated Clearing House (ACH), which operates through National Automated Clearing House. It is mainly used for: 

• Transferring batch-based recurring financial transactions like payroll 
• Operating on a mandate system, where users authorise bank deposits on fixed dates 
• Facilitating standard and high volume transfers in the country 

5. Wire Transfer

Wire transfers are direct bank-to-bank transfers which could be domestic, but are primarily used for international transactions. These transfers are processed individually and not in batches, which also makes them faster. They are best suited for: 

• Cross-border payments which typically take 1-5 business days 
• High value international payments 
• Real time settlement via highly secure networks like SWIFT 

6. UPI (As an EFT method) 

Unified Payments Interface (UPI) uses a virtual payment address or QR code that helps in transferring money in seconds between bank accounts by just using a mobile device. It is developed by the NPCI and regulated by the RBI. Key features of UPI are as follows: 

• Instant transfers powered by NPCI and IMPS 
• Efficient mobile-based transactions 
• Linking multiple bank accounts to a single app, ensuring seamless transactions

Uses of EFT in banking 

EFT is fundamental to modern banking as it enables seamless payments digitally. EFT systems are used for multiple purposes including: 

• Customer account transfers: EFT enables individuals to transfer funds between their own accounts or to other beneficiaries. 
• Salary/Payroll: Organizations use EFT to automate employee salary payments directly into bank accounts, improving efficiency and eliminating delays associated with physical payments.
• Bills and Utility Payments: EFT transfers are commonly used for rent, loan EMIs, subscriptions, and insurance premiums. 
• Government Transactions: Public sectors widely use EFT for subsidies, pension payments, tax refunds, and more.
• Cross border payments: Through international EFT channels such as wire transfers, banks enable businesses to send and receive funds globally.

Speed and Convenience 

EFT completely eliminates the need for physical visits to bank branches or handling paper-based tools. 

Transactions can be initiated anytime through digital banking platforms, with most EFT methods offering real-time settlement.

Transparency and Security 

Every EFT generates a transaction ID for better traceability, reconciliation, and trackability. These transactions are also protected through encryption protocols, multi-factor authentication, and secure banking networks. 

Cost-effectiveness 

Digital transfers involve zero to very nominal costs as compared to cash handling, check clearing, and other administrative costs of physical documentation. This makes EFT highly efficient for high value transactions.

Although cash has been a traditional and tangible form of exchange, modern businesses are trying to shift towards a digital option that is smart and convenient. Here are some key differences between the two mediums:

EFT vs cheque payments 

Although cheque payments provide better traceability than cash, they continue to have certain limitations as compared to EFTs in modern businesses. Key differences include:

EFT vs wire transfers

EFT and wire transfers serve different functions in the payment ecosystem, but are often used interchangeably. Here are some key differences:

Here is a breakdown of the most common types of EFT with their limits and charges per transaction:

EFT systems are based on layered security structures guided by the RBI to ensure safe, reliable, and efficient payments. They operate through: 

End-to-end encryption

All modern EFT frameworks employ end-to-end encryption for a secure transmission of data, which involve fully secure and encrypted banking networks that prevent any kind of manipulation during the processing of funds. 

Multi-factor authentication

Most EFT systems require one or two factor authentication like OTPs, biometrics, and device authentication  to reduce the risk of unwanted access. This layered authentication is a crucial tool for payment systems to reduce the possibility of credentials misuse and strengthen transaction security. 

Secure payment messaging

This refers to financial messaging moving across the payment ecosystem in structured and well defined formats as organised financial messaging ensures accuracy and reduces the risk of manipulation. 

Regulated by RBI

Most payment systems are guided and regulated by the RBI, which mandates transaction limits, prevention of fraud, and real-time alerts. RBI also ensures that dispute redressal frameworks are in place so that EFT systems are resilient against transaction friction.

Despite their settlement-speed, operational efficiency, and paperless medium, EFT transactions may experience occasional issues such as: 

Incorrect Details

EFT systems rely on accurate data inputs for smooth transaction processing. Errors in account numbers, IFSC codes, and beneficiary names can lead to rejection of transactions, funds being routed incorrectly, and unwanted delays. 

Network Issues 

Temporary outrages in banking servers, payment gateways, and core systems can lead to interruptions in processing and settlement. Even though these interruptions are temporary and usually get resolved quickly, they may affect time-sensitive settlements. 

Delay in settlement

Even within real-time frameworks like IMPS, NEFT, compliance checks and inter-bank processing may be subject to delays depending on the bank. This could be more probable in bulk transactions and high-value payments.

Reversal challenges

In case of misdirected transfers, EFT payment systems usually require multiple investigation cycles which should be complemented with bank cooperation, beneficiary consent, and formal complaint frameworks. This makes immediate reversals uncommon, making recovery timelines longer.   

Examples of electronic fund transfer

EFT systems form the backbone for many institutions including businesses, banks, and personal uses. Common examples of EFT include: 

• Direct Deposits: These are widely used across businesses to transfer salaries into employee accounts, and settle vendor payments for timely disbursements. 
• ATM transactions: Withdrawing cash at an ATM is also an integral part of EFT. Interbank settlement networks support processing and settlements between issuing and receiving banks. 
• UPI: UPI transactions highly support peer-to-peer payments for purchases, utilities, and bill payments as they are quick, easy-to-use, and mobile friendly. 
• Wire Transfers: Sending money to friends/family staying abroad that involve large, high-value transfers. Unlike other EFT networks, wire transfers move through universal networks like SWIFT as they also involve currency conversion. 

Conclusion 

As payment ecosystems evolve into efficient digital mediums, EFT has been an essential tool to support this transformation. 

For businesses trying to scale internationally, wire transfers often include multiple intermediaries, high FX markups, and settlement timelines. This is where Xflow plays an instrumental role. 

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• Lowest fx rates
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• Easy compliance
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• Automated reporting
• Regulatory support

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