In international business, companies often need to pay vendors in different countries. This is where Electronic Funds Transfers or EFT payments come in. EFTs let businesses send money electronically to people or companies in other countries.

Understanding how EFT payments work is important for international businesses. It helps them manage their money better and follow the rules for sending money across borders. By using EFTs, businesses can pay overseas vendors, settle bills with suppliers in other countries, pay for services from abroad, and pay employees working outside their home country.

What are EFT payments? Are they the same as wire transfers? 

Read on…

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What is EFT Payment in international trade?

Electronic Funds Transfer or EFT payment is a way to move money electronically from one bank account to another outside India or within India.They provide individuals, businesses, and organizations with a convenient and secure means of sending and receiving money without relying on physical checks or cash. EFTs serve various purposes, including bill payments, transferring funds between accounts, online purchases, and sending money to acquaintances or family members. This digital payment method offers convenience, speed, and security, making it a popular choice for financial transactions in today's digital age.

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What is the difference between EFT Payments and ACH?

The difference between Electronic Funds Transfer (EFT) and Automated Clearing House (ACH) lies in their scope and functionality within the realm of EFT payments:

• Scope:
  • EFT (Electronic Funds Transfer): EFT is a broad term encompassing any transfer of funds conducted electronically, regardless of the specific method or network used. It includes a wide range of electronic transactions, such as wire transfers, card payments, and direct deposits.
  • ACH (Automated Clearing House): ACH refers to a specific network and system designed for processing batches of electronic transactions in the United States. It facilitates various types of electronic payments, including direct deposits, payroll transfers, bill payments, and business-to-business transactions.
• Functionality:
  • EFT: EFT -payment covers a wide array of electronic payment methods and systems, including those that operate domestically and internationally. It is a generic term that encompasses all forms of electronic funds transfers, regardless of the processing network or method.
  • ACH: ACH specifically refers to the electronic funds transfer system operated by the National Automated Clearing House Association (NACHA) in the United States. It is primarily used for domestic transactions and batch processing of payments, with funds typically taking 1-3 business days to settle.

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What is the difference between EFT and RTGS?

The primary difference between Electronic Funds Transfer (EFT) and Real-Time Gross Settlement (RTGS) lies in their processing speed and the types of transactions they handle:

Processing Speed:

• EFT (Electronic Funds Transfer): EFT payments involve electronically transferring funds between bank accounts. However, the time taken for settlement can vary depending on factors such as the involved banks and the payment method. EFT transactions may take hours to days to complete.
• RTGS (Real-Time Gross Settlement): RTGS systems are designed for the immediate settlement of high-value transactions. In an RTGS system, funds are transferred instantly or within minutes of initiation, allowing for real-time processing.

Transaction Types:

• EFT: EFT payment encompasses various electronic payment methods, including direct deposits, wire transfers, card payments, and automated clearing house (ACH) transfers. These transactions can vary in value and frequency, accommodating both low-value and high-value payments.
• RTGS: RTGS systems primarily handle time-sensitive and high-value transactions such as interbank transfers, large commercial payments, and securities trading settlements. RTGS ensures immediate settlement and finality, specifically tailored to large-value transactions.

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FAQs

Is EFT the same as wire transfer?

While both Electronic Funds Transfer (EFT) and wire transfers involve the electronic movement of funds between bank accounts, they have distinctions:

• Scope:
  • EFT (Electronic Funds Transfer): EFT payment is a broad term encompassing various electronic payment methods, including direct deposits, card payments, ACH transfers, and wire transfers. It covers all electronic fund transfers, regardless of the specific method or network used.
  • Wire Transfer: Wire transfer refers specifically to the direct transfer of funds from one bank account to another. It's commonly used for high-value transactions, domestically and internationally.
• Processing Speed:
  • EFT: Settlement times for EFT payments can vary depending on factors like the banks involved and the payment method. They can take from a few hours to several business days.
  • Wire Transfer: Wire transfers often have quicker processing times compared to other EFT methods. Domestic wire transfers may settle on the same business day, while international transfers can take a few days.
• Use Cases:
  • EFT: EFT payment covers a wide range of electronic payment methods and is used for various transactions such as direct deposits and bill payments.
  • Wire Transfer: Wire transfers are typically used for high-value transactions requiring immediate settlement, like real estate transactions or international money transfers.

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Why does EFT take 3 days?

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EFT transactions may require up to three days to settle due to various factors:

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• Processing Procedures: EFT transactions involve several steps, including verification and authorization by both the sending and receiving banks. These processes take time to complete, leading to settlement delays.

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• Batch Processing: Many EFT systems operate on a batch processing basis, where transactions are grouped and processed periodically throughout the day. Transactions initiated after the cutoff time may be deferred until the next processing batch, prolonging the settlement process.

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• Bank Policies: Each bank may have its own internal policies that affect the speed of EFT transactions. Additionally, factors like bank holidays, weekends, and non-business hours can impact processing times.

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• Funds Availability: Even after processing, funds may not be immediately available to the recipient as banks often hold funds temporarily to verify the transaction's legitimacy and prevent fraud or insufficient funds.

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Is EFT the same as SWIFT?

No, Electronic Funds Transfer (EFT) and SWIFT (Society for Worldwide Interbank Financial Telecommunication) are distinct entities with differing functions:

• Scope:
  • SWIFT: SWIFT serves as a secure messaging network utilized by financial institutions worldwide for transmitting information and instructions related to financial transactions. It facilitates communication between banks and financial entities for activities such as international money transfers, trade finance, and securities transactions.
• Functionality:
  • EFT: EFT primarily focuses on the movement of funds between bank accounts electronically, ensuring the transfer of money from one account to another.
  • SWIFT: SWIFT provides a platform for secure messaging, allowing banks and financial institutions to exchange information regarding financial transactions. It does not physically transfer funds but facilitates the transmission of payment instructions, settlement details, and other transaction-related data.

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