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Electronic Funds
Overview
Electronic Funds Transfer (EFT)
is a system of transferring money from one bank
account directly to another without any paper
money changing hands. 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.
Transactions are processed by
the bank through the Automated Clearing House
(ACH) network, the secure transfer system that
connects all U.S. 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.
| Automated
Clearing House Network
The ACH Network
is a highly reliable and efficient nationwide
batch-oriented electronic funds transfer
system governed by the NACHA OPERATING RULES,
which provide for the interbank clearing
of electronic payments for participating
depository financial institutions.
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The Automated Clearinghouse (ACH)
is an electronic payment delivery system most
often used to process low-dollar repetitive retail
payments. The system is used primarily for pre-authorized
recurring payments such as payroll, corporate
payments to vendors, Social Security payments,
insurance premium payments and utility payments.
First introduced in the early 1970s as a more
efficient alternative to checks, The ACH Network
has evolved into a nationwide mechanism that processes
electronically originated credit and debit transfers
for any participating institutions nationwide.
The ACH Network is a rapidly growing alternative
to paper checks and handles billions of payments
annually.
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.
Today's business environment
is very favorable for the benefits electronic
payment services can provide. Checks are still
a viable payment method and will continue to be
so well into the future. Check volume is increasing
by 1.5 billion per year and is estimated to increase
1% - 2% annually until the year 2025. Industry
statistics show 200 million Americans have checking
accounts and approximately 84% use personal checks
as their primary method of payment. Consumers
write over 60 billion checks annually, and approximately
11 billion are written at the retail point-of-sale.
Without electronic check processing,
merchants must rely on a relatively slow paper-based
check clearing system to receive final payment
or to be notified of a return. As shown in a 1996
Federal Reserve check fraud survey, the average
time for local and non-local checks combined was
5.5 calendar days to make the round trip from
the depository bank to the paying bank and back
to the depository bank. The National Automated
Clearing House Association (NACHA) regulations,
new technologies, customer acceptance and software
development have all helped to make paper check
conversion (Electronic Check Truncation) possible.
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