An Electronic Funds Transfer (EFT) is a digital transaction that involves the transfer of money from one bank account to another using electronic means. EFTs are commonly used for various purposes, including online purchases, bill payments, and direct deposits. While EFTs are convenient, they can be vulnerable to fraud, such as unauthorized transfers. Financial institutions employ security measures and transaction monitoring systems to protect against EFT fraud and ensure the integrity of electronic payments.
How EFT Works
Electronic Funds Transfer (EFT) refers to the automated movement of money between bank accounts without the direct involvement of bank staff. EFT systems operate through secure networks that communicate transaction information in real time or via batch processing. These systems are used globally for both domestic and international transactions and encompass various payment methods.
Common EFT mechanisms include:
ACH transfers (Automated Clearing House)
Wire transfers
Direct deposits for payroll, pensions, and benefits
Debit and credit card payments
Online bill payments and eChecks
Point-of-sale (POS) transactions
Each type of EFT has specific processing speeds, costs, and regulatory requirements, depending on the network and financial institutions involved.
EFT in the Context of Compliance and Financial Crime
Because EFTs move money digitally and often across borders, they are a significant focus area for financial crime risk management. Criminals may use EFT channels for:
Money laundering, by layering illicit funds through multiple accounts and jurisdictions
Terrorist financing, by discreetly funding foreign entities or individuals
Fraudulent transfers, using stolen credentials or synthetic identities
Sanctions evasion, through hidden or indirect payment chains
To address these risks, financial institutions must monitor EFT activity closely using real-time and post-transaction analysis tools. EFTs are subject to anti-money laundering (AML) obligations, including:
Customer due diligence (CDD)
Transaction monitoring for unusual patterns or high-risk destinations
Filing of Suspicious Activity Reports (SARs/STRs)
Screening against sanctions lists and politically exposed persons (PEPs)
Robust compliance frameworks help institutions identify and report high-risk EFTs, while also preventing regulatory breaches and reputational harm.
EFT vs. Other Payment Types
While EFT is often used as a general term for electronic transfers, it differs from other payment models in important ways:
EFT vs. Wire Transfer: Wire transfers are a type of EFT but are usually processed in real-time, with higher fees and irrevocability. ACH-based EFTs, in contrast, are often batched and settle over several hours or days.
EFT vs. Cryptocurrency: EFTs rely on centralized, regulated institutions and fiat currencies, while cryptocurrency transactions occur over decentralized blockchain networks and may not be tied to legal tender.
EFT vs. Card Payments: Debit and credit card payments are also classified as EFTs, but they typically flow through card network processors (e.g., Visa, Mastercard), introducing additional layers of security and fees.
Understanding these distinctions is key to selecting the right payment method for business and compliance needs.
Benefits of EFT for Businesses and Consumers
EFTs offer multiple advantages for businesses, governments, and consumers:
Speed and convenience: Especially for real-time payments or recurring transactions
Lower processing costs compared to paper-based checks or manual cash handling
Improved cash flow management, allowing businesses to forecast receivables and payables
Increased traceability, aiding in audit readiness and dispute resolution
Enhanced security, when compared to physical currency or check-based transactions
These features make EFT a preferred method for salary payments, supplier disbursements, tax refunds, and utility billing across most sectors.
Regulatory Considerations
Regulations surrounding EFTs vary by country and payment type but generally fall under broader financial services and AML legislation. Key regulatory frameworks include:
The Bank Secrecy Act (BSA) in the United States
Payment Services Directive 2 (PSD2) in the European Union
FATF Recommendations related to wire transfers and recordkeeping
Local central bank guidance on payment clearing and settlement
Regulated institutions must also maintain audit trails, record transaction data, and conduct ongoing risk assessments of their payment systems.
Challenges and Emerging Risks
As digital payments increase, EFT systems face new threats, including:
Account takeover fraud (ATO) using social engineering or phishing
Business email compromise (BEC) attacks that alter payment instructions
Real-time payment risks, where fraudulent transfers can’t be reversed
Data privacy concerns, especially in cross-border transfers subject to GDPR or other data protection laws
Mitigating these risks requires layered security controls, including transaction verification, behavioral analytics, multi-factor authentication, and internal training for staff handling payments.
The Future of EFT
EFT is evolving with the rise of instant payment networks such as FedNow in the U.S., SEPA Instant in the EU, and UPI in India. These infrastructures aim to improve speed, interoperability, and financial inclusion while placing greater demands on fraud detection and AML systems.
At the same time, API-based banking and embedded finance are blurring the lines between traditional EFT and innovative digital payment experiences. Institutions must adapt to new formats and delivery channels while maintaining compliance and operational resilience.
