How Does Electronic Funds Transfer Work?

An electronic funds transfer works by using computer and electronic technology rather than paper transactions in order to transfer money, as stated on the Consumer Information page of the Federal Trade Commission. Common EFT services include ATMs, direct deposit, pay-by-phone systems, personal computer banking, debit card transactions and electronic check conversion.

People initiate EFTs through devices like cards or codes that enable them to access their account, says the FTC. Most financial institutions use ATM cards and Personal Identification Numbers (PINs) to transfer money via EFT. Other financial institutions use other kinds of debit cards that require a signature or scan.

ATMs are electronic terminals that allow people to bank almost virtually any time. An ATM card and PIN are necessary to transfer funds, make deposits and withdraw cash. Direct deposit permits authorization of certain deposits, such as paychecks and Social Security checks, to a person’s account on a regular basis. Pay-by-phone systems enable people to contact their financial institution and provide instructions regarding the payment of bills or transfer of funds between accounts. Personal computer banking allows handling of numerous banking transactions through a personal computer, and debit card payment transactions let consumers make payments and purchases using a debit card. Lastly, electronic check conversion converts paper checks into electronic payments.