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An electronic funds transfer system (EFTS) is a transfer system in which money can be transferred to business or individual accounts without requiring paper money to change hands. Electronic funds transfer systems are used for payroll payments, debit or credit transfers, mortgage payments or other payments. Due to its benefits, electronic funds transfer systems are promoted by most financial institutions.
An electronic funds transfer system functions similarly to that of a debit card system. In all transaction cases, the payer needs to be enrolled for the electronic funds transfer system and should ensure the necessary credit in their accounts. The process in electronic funds transfer system involves the payer initiating the electronic funds transfer. Depending on the type of transfer, the Automated Clearing House debits the amount from the payer and instructs for credit to the payee. The credit to the payee depends on the payee’s bank back-end processes. In most cases, funds transfers in electronic funds transfer system take up to three days. Automated payment to the payee is also possible through electronic funds transfer systems.
An electronic funds transfer system ensures that administrative costs are less as the direct intervention of bank staff is not required, and thus the cost savings is greater. It also simplifies the bookkeeping and increases much-needed accuracy. The transaction history is readily available to all parties involved at all times. Another benefit is that an electronic funds transfer system provides great security and protection to the funds.