10 min read

Electronic Funds Transfer: The Modern Way to Move Money

December 1, 2023

Feeling like you're navigating a maze of payment options for your business? Well, you're not alone. There’s a plethora of payment methods available, and each has a unique flavor with its own recipe of pros and cons. 

But today, we’re here to save you some time.

Among the banquet of choices available, EFT (Electronic Funds Transfer) serves as a particularly appetizing payment pick for the modern entrepreneur.

EFT is like the digital express lane for moving money. It's a no-fuss, no-muss way to transfer funds from one account to another, electronically. It’s perfect for a range of uses, from paying your suppliers with a click, to streamlining customer billing, or even making payroll a breeze with direct deposits. And if you’re dealing with regular payments, like monthly subscriptions, EFT is also your go-to for hassle-free, recurring transactions.

The adoption of EFTs has brought about a revolution in payment and money transfer processes. In the 2023 Canadian Payment Methods and Trends Report by Payments Canada, EFT led all other payment types in transaction value accounting for 59% of the total payment value in 2022 (increasing from 57% in 2021)! And get this – the average EFT transaction value increased by 11% in 2022 to $2,235 (compared to $2,021 in 2021). 

Impressive? We think so!

In this blog, we’re simplifying everything for you, providing the essential knowledge to skillfully move through the world of EFTs. Our goal is to boost your confidence in weaving this method into the fabric of your business. 

Let's get started!

 

What is an EFT?

EFT, or Electronic Funds Transfer, is a digital process in which funds are electronically withdrawn from one account and transferred to another. At its core, it’s a convenient way to digitally move money between bank accounts or digital wallets. Note, for simplicity within this article, we will refer to bank accounts, accounts and digital wallets interchangeably.  

You can think of EFT as an umbrella term that refers to all transactions carried out either through a personal deposit or business operating account held at a Canadian financial institution. This includes direct deposits, electronic remittances, pre-authorized debits, online bill payment transactions, and more.

Instead of relying on traditional paper-based methods like cash or cheque, EFTs harness the power of electronic systems to initiate, process, and complete financial transactions. This technology-driven approach has revolutionized the way we handle payments, making it faster, more convenient, and more secure. 

It’s also ideal for setting up periodic payments – EFTs are widely used for automating regular bill payments or scheduling consistent money transfers. Their secure, and user-friendly nature also makes them a preferred method for employers to disburse salaries to employees.

As you can see, EFT is the cool new kid on the block in the world of payments, totally revolutionizing the way we shuffle our dollars around. Dare we say, EFT is the MVP?

 

How do ETFs work?

EFTs operate through a straightforward but incredibly efficient system, where money zips between accounts electronically. Let's unravel the process:

  1. Initiation: The process begins with the sender initiating the transaction. This can be an individual, a business, or a financial institution.
  2. Authorization: The sender authorizes the transfer of funds by providing the necessary details, such as the recipient's bank account number, financial institution's number, the branch number, the transit number, and the amount to be transferred. Many of these details can usually be found on a personal or void cheque, or through a direct deposit form available for download from your online banking portal.
  3. Transaction Processing: The sender's bank or financial institution processes the transaction electronically. This involves verifying the sender's account balance, ensuring that the recipient's account exists, and confirming the transaction's validity.
  4. Transfer: Once the transaction is verified, the funds are electronically debited from the sender's account and credited to the recipient's account. This transfer occurs swiftly and securely.
  5. Notification: Both the sender and recipient receive notifications confirming the successful transfer of funds. This documentation is crucial for record-keeping and transparency.
  6. Completion: The EFT transaction is considered complete once the funds are successfully transferred to the recipient's account. The entire process typically takes only a matter of minutes. However, processing times will vary depending on the sending and receiving financial institutions.  

EFTs significantly accelerate the pace at which transactions are completed, often allowing for the transfer of funds within a single business day, depending on the type of EFT and the institutions involved. This speed is a big improvement over traditional methods, which can take several days to clear and settle.

For example, at DCGroup, we offer multiple processing times and same-day options, so you can rest easy knowing that your business transactions will be on time, and without the processing delays of the past:

  • Regular Transactions: Transmitted every business day at 5:00 am MST.
  • Priority Transactions: Multiple processing times each business day at 5:00am, 10:00am, and 3:30pm MST.

EFT stands as a modern, efficient, and secure method of handling financial transactions. Its impact on the financial world has been profound, offering speed, convenience, and security that traditional methods simply cannot match. 

 

What are the different types of EFTs?

Think of EFT as a financial toolbox, with each tool inside designed for specific money-moving tasks. Let's peek into this toolbox to see some of the most commonly used types of Electronic Funds Transfer

  • Direct Deposit: The go-to method for dropping salaries, tax refunds, and other payments directly into bank accounts. It says goodbye to the days of physical cheques and hello to speedier transactions.

  • Electronic Remittances: Often used in the context of business-to-business (B2B) or business-to-government (B2G) transactions. It may involve payments, but it can also include other financial transactions like refunds, disbursements, or settlements.

  • Pre-authorized Debits: As if on financial autopilot, pre-authorized debits are primarily used for making payments or transferring funds from one bank account to another on a regular, recurring basis.

  • ACH (Automated Clearing House): The ACH system, primarily a U.S. network, facilitates cross-border electronic payments between the U.S. and Canada, offering a cost-effective and efficient means for Canadians to transfer funds to and from U.S. bank accounts. This system is particularly beneficial for Canadian businesses and individuals engaged in transactions with U.S. counterparts.

EFT Methods

Each type serves a unique purpose, from managing daily expenses to facilitating big business deals, showcasing EFTs vital role in our digital-first world.

 

What are the features, limitations, and pricing of each EFT method?

To help you understand the different EFT methods, we’ve created a simple comparison chart to break down the features, benefits, limitations, and pricing. Let’s take a look:

Direct Deposit

  • Features:

    • Deposits payments directly into bank accounts

    • Eliminates the need for physical cheques

    • Speedier transactions

    • Convenience for recipients

  • Pricing:

    • Varies by bank or service provider

  • Limitations:

    • Requires recipient's bank account information
    • May have setup time for new recipients

Electronic Remittances

  • Features:

    • Digital fund transfers for bills and expenses

    • Paperless transactions

    • Efficient for businesses and individuals

  • Pricing:

    • Varies by service provider

  • Limitations:

    • Requires recipient's bank information
    • May involve transaction fees

Pre-authorized Debits

  • Features:
    • Automated withdrawals for regular bills
    • Ensures timely payments
    • Eliminates missed payment deadlines
    • Convenient for bill management

  • Pricing:

    • Varies by service provider

  • Limitations:

    • Requires authorization from the recipient
    • May require maintaining sufficient funds

ACH (Automated Clearing House)

  • Features:
    • Batch processing for payrolls and bill payments
    • Recurring payments
    • Set and forget recurring transactions

  • Pricing:

    • Varies by service provider

  • Limitations:

    • Processing time for batches
    • May involve setup for recurring payments
    • U.S. centric product; really a form of EFT in the United States

Important note: pricing for each method may vary depending on your bank, financial institution, or service provider. It's essential to check with your payment partner for specific details on pricing and features. 

EFT Methods Comparison Chart

 

What are the benefits of using EFTs?

EFT offers a variety of benefits, which is why it’s become a popular choice for individuals and businesses alike. In fact, according to a 2023 poll by Payments Canada, Canadians who regularly use EFT do so for several reasons – the highest (at 44%) being that it's easier and more convenient than other payment methods available. Here’s a few more benefits of this modern payment tool:

  • Speed and Efficiency: Think of EFT as the financial world's version of express delivery. Transactions move at lightning speed, giving businesses instant access to funds. Of course, processing times are dependent on the sending and receiving financial institutions. This is a game-changer for cash flow management – like having a financial fast lane.

  • Convenience: Gone are the days of writing checks or handling stacks of cash. EFT is the ultimate upgrade to a paperless, hassle-free financial world. It's like swapping a typewriter for a laptop in terms of handling your transactions.

  • Cost Savings: EFT slashes those pesky administrative costs. Think less printing, no more buying stamps, and saying goodbye to those trips to the post office. It's like giving your business a financial haircut, trimming away the unnecessary expenses.

  • Accuracy: With EFT, the risk of human error gets knocked down a notch. It's like having an accountant inside your computer, ensuring every penny goes exactly where it should.

  • Security: EFT security is akin to a digital fortress. With top-notch encryption and authentication, your financial data is guarded like treasure in a vault, and you can sleep sound knowing your finances are locked away safely.

  • Accessibility: EFT is like that reliable friend who's always there, 24/7. Need to make a transaction at midnight or on a Sunday afternoon? EFT has your back, making sure your business never has to wait for 'banking hours' again. Note, while the transaction may be initiated at any time, arrival depends on the processing times of the sending and receiving financial institutions. 

In short, EFT is not just a financial tool; it's a business lifestyle upgrade. It’s savvy, secure, and just plain smart, turning the once-daunting world of financial transactions into a walk in the park. 

 

How do I integrate EFTs into my business?

Typically, if you’re looking to add EFTs to your business, you will partner with a payment provider or financial institution. You can then easily integrate EFT functionality into your existing systems via the use of an API (Application Programming Interface). 

Once integrated, your payment partner ensures the free flow of funds between financial institutions across a secure online network so you can send, receive, and manage money quickly and safely, with absolute confidence.

Let’s use us as an example – at DCGroup, our EFT platform provides easy integration with options for customization. Through our API Client Sandbox, you can preview all the different EFT functionalities we offer, such as:

  • Create, update, cancel and search EFT transactions

  • Set-up, search, and freeze recurring transactions 

  • Add, delete, and update external EFT account

  • Get EFT customer

  • Receive EFT transaction codes

  • Request and receive payments

  • Receive automated reporting

Recurring EFT Payment Integration

API integration has transformed EFT management for businesses, providing a secure, flexible, and efficient platform. With a range of functionalities like transaction management, automated reporting, and various processing times, it ensures timely and reliable financial operations, streamlining your business transactions in the digital age.

 

How do I choose an EFT Provider?

Selecting the perfect EFT provider is all about finding the right fit for your financial goals. Here's a simple guide to help you make an informed choice:

  • Transaction Frequency: Think about how frequently you'll be tapping into the world of EFT. Will you be using it daily or occasionally? Understanding the frequency of your transactions will help you choose the EFT provider that suits your tempo.

  • Transaction Size: Are you playing with the big bucks? EFTs are capable of sending large and small transactions alike! However, providers will differ in terms of EFT limits. Make sure to choose a provider that suits your transaction size needs.

  • Accessibility: Make sure your chosen EFT provider isn't a solo act. Your EFT choice should seamlessly integrate with your existing financial ecosystem and be readily embraced by those you're transacting with. Compatibility is key!

  • Cost: While the convenience of EFT is undeniable, it's essential to be mindful of transaction fees in the EFT world. Different providers come with varying costs, so it's wise to find an option that aligns with your financial strategy. No one likes surprises on the bill, so check those fees and ensure they fit within your budget.

  • Security: Don't compromise on safety, especially when dealing with sensitive financial information. Look for EFT providers that come equipped with robust security features to shield your financial interests. Your peace of mind should always be a top priority.

  • International Transactions: Got global ambitions? Ensure your chosen EFT provider isn't geographically challenged. It should speak the language of cross-border transfers.

What is customer support like for EFTs?

Navigating the customer support landscape in the world of EFTs is all about the experience. Here's a simple structure for assessing the customer support quality of your EFT service provider:

  • Availability: Make sure their customer support hours match your schedule. After all, you don't want to be left hanging when you need help outside regular business hours.

  • Contact Methods: Variety is the spice of life, and it's no different for customer support. Seek out providers offering a variety of contact options in case you have questions or need assistance.

  • Response Time: In the land of customer support, speed matters. Check out what fellow users say about response times. Faster responses often mean smoother sailing.

  • Resolution Efficiency: It's not just about the speed; it's about the solution. Gauge how swiftly and effectively customer support tackles and resolves your concerns. A helpful hand can make all the difference.

When looking for a payments partner to implement EFTs into your business, you can use these points as your compass, ensuring you have a smooth ride along the way.

 

What are the security features for EFTs?

When it comes to EFT security, think of it as the vault that guards your financial treasures. Here's a rundown of the security features you'll often find in an EFT service providers arsenal:

    • Encryption: Picture your EFT transactions wrapped in an impenetrable cloak. Encryption ensures that sensitive data stays confidential during its digital journey.

    • Multi-Factor Authentication (MFA): Think of it as your EFTs secret handshake club. MFA adds extra layers of protection by confirming your identity with more than just a password, making sure only you can access your funds.

    • Fraud Detection: Meet the Sherlock Holmes of EFT. An EFT provider’s advanced algorithms can keep an eagle eye on transactions, swiftly detecting and thwarting any shady business.

    • Secure Protocols: EFT services don't play by anyone else's rules. They follow stringent protocols and compliance standards, creating a fortress around your transactions.

    • Transaction Verification: Imagine a digital bouncer at the entrance. Many providers send one-time passcodes to your mobile device for you to enter, ensuring your transactions are safe and sound.

    • Privacy Policies: Take a peek at the provider's privacy policies, guided by Canada's stringent privacy regulations, to understand how they guard and respect your personal and financial information.

With these security features at your side, your EFT transactions are like a well-guarded treasure chest, protected from prying eyes and cyber pirates. Sail on, knowing your financial ship is in safe waters.

 

Final Thoughts

In the realm of payment options, Electronic Funds Transfer (EFT) shines as the dependable choice for the modern Canadian business. They simplify financial transactions, providing convenience, speed, and security. At its core, EFTs are digital conductors facilitating seamless fund transfers between accounts.

But remember, EFT isn't a one-size-fits-all solution; it's a toolbox with many specialized tools. Whether it's direct deposit, pre-authorized debits, or electronic remittances, each tool serves a unique purpose, catering to your various financial needs. So don't hesitate to harness the power of EFTs and experience the benefits of smoother and more efficient financial transactions. It’s time to say “au revoir” to that old cheque book.

For more information or to explore how our solutions can benefit your business, reach out to us at DCGroup. Our team is ready to guide you through the dynamic world of EFTs and help you optimize your financial processes. Let's work together to transform your business. Contact us today.

 

Sources:
Business Payment Solutions Electronic Funds Transfer API