As an MSP, you need to collect and make payments online all the time. In financial terms, these online payments are collectively known as electronic funds transfer or EFT payments. 

Whether you make an ACH payment, Wire transfer, or electronic card payment, all come under EFT. Therefore, understanding how EFT works is important for MSP payment management. 

Here’s all you need to know about EFT payments and how they work.

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What is an EFT payment?

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EFT stands for Electronic Funds Transfer. It is a type of payment that allows you to transfer funds directly from one bank account to another electronically. This includes direct deposits of paychecks, automatic bill payments, and online money transfers. An EFT payment is a speedier, more secure alternative to physical payment methods like check and cash.

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Types of EFT payments

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EFT is an umbrella term for all payments made digitally. Let’s look at some common types of EFT payments. 

Direct deposits

A direct deposit refers to transferring funds electronically from one bank account to another. It’s normally used for paychecks and government benefits. 

ACH transfers

ACH transfers are a type of online payment that enables the transfer of funds between two domestic bank accounts for free or at a nominal cost. They’re slightly slower (up to 4 business days) than wire transfers, making them ideal for domestic, high-frequency transactions. If you want to collect ACH payments easily, check out Zomentum Payments. 

Wire transfers

Wire transfers are secure, real-time EFTs that move money between financial institutions. They are instant and generally carry a transfer fee. Wire transfers generally involve large transactions or international payments. 

Card-based electronic payments

Card-based electronic payments refer to payments made from a credit or debit card to a bank account. This includes swiping or tapping the card at offline stores or using cards to pay online. 

Mobile wallet payments

Mobile wallet payments are transfers made using mobile wallet platforms like Apple Pay or Google Pay. They are quick transfers; you can even set them up to pay with a single tap without entering a one-time password (OTP). 

ATM

ATMs allow you to withdraw cash using debit or credit cards. It’s a faster alternative to going to a bank and filling out the withdrawal slip to withdraw money. 

Electronic checks

Electronic checks or e-checks are a digital version of physical checks. They work in a similar manner — allowing you to make payments without the need for cash or a physical check.

Note: As an MSP or IT service provider, you’ll most commonly deal with ACH payments, wire transfers, and card-based electronic payments.

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Domestic vs. international vs. peer-to-peer EFT payments

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To draw a better distinction between them, let’s categorize them into three categories. 

• Peer-to-peer EFT payments
• Domestic EFT payments
• International EFT payments

Let’s get peer-to-peer EFT payments out of the way, as you’ll most likely not deal with them as an MSP business. They’re electronic payments made between two individuals. Commonly used EFT methods for P2P transactions are mobile wallet apps and ACH transfers. 

Now, let’s move to domestic transfers — i.e., transfers taking place within the USA. ACH transfers and card payments are the most common types of EFT payments between businesses. Since ACH payments carry a zero or negligible transaction fee, they’re more commonly used for frequent domestic transactions. 

International EFT payments are known as wire transfers and are used for large, cross-border transactions. They’re usually done through the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, and most countries have their own methods of processing international payments. 

For instance, the US uses international ACH transfers, whereas European countries use SEPA. 

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How do EFT transfers work?

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Domestic EFT transactions are processed through the Automated Clearing House (ACH) – a transfer system that connects all financial institutions in the USA. 

ACH processes EFT transactions in batches instead of clearing them instantly. So, the transactions are accrued throughout the day and processed later. 

To complete an EFT transaction, the sender needs to enter details like the receiver’s name, bank name, account number, and routing number. 

International EFT transactions are processed through SWIFT, as discussed earlier. SWIFT provides a unique identifier code to each bank, enabling seamless transfer of funds between bank accounts across borders. Wire transfers are significantly faster than ACH payments, with international payments taking 2-5 days to settle. 

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How long does it take for EFT payments to clear?

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The time taken for EFT payments to clear depends on their type. Here’s the average time taken by common EFT payment methods:

• Direct deposits: Up to 2 business days
• ACH transfers: 1-3 business days
• Wire transfers (international): 1-5 business days
• Card-based electronic transactions: Instant
• Mobile wallet payments: Instant
• ATM transactions: Instant
• Electronic checks: 2-4 business days

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Benefits of EFT payments

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Here are the benefits of EFT payments:

• Speed: EFT payments are faster, in some cases, even instant. Hence, they enable quick transactions, unlike their paper counterparts. 
• Convenience: EFT transactions are significantly more convenient than paper transactions for both individuals and businesses. You can initiate and complete them digitally anytime and anywhere. 
• Reduced costs: EFT payments eliminate the need for paper and manual processing, making them less money and resource-consuming than paper transactions. 
• Security: EFT payments are backed by robust encryption and authentication measures, making them highly secure and trustworthy. 
• Accuracy: Electronic payments reduce the risk of human error, such as typing in the wrong amount on checks or inaccurately counting paper bills.
• Global transactions: EFT payments enable you to send and receive money across the globe, making it easier for MSPs to do business worldwide.
• 24x7 accessibility: EFT systems like ACH and Wire operate around the clock, allowing you to send and receive money anytime. 

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EFT payment regulations to keep in mind

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These payments are regulated by various standards and laws to ensure consumer protection and data safety. Some of them include:

• EFT Act (Regulation E): It provides consumer protection for electronic funds transfer, including error resolution and liability limits for unauthorized transfers and disclosures. 
• Payment Card Industry Data Security Standard (PCI DSS): This act comprises standards to ensure the secure processing of electronic card transactions while ensuring secure processing, storage, and transmission of cardholder data. 
• Bank Secrecy Act (BSA): This act mandates banks and other financial institutions to report and prevent money laundering and suspicious transactions. 
• National Automated Clearing House Association (NACHA): It establishes rules and standards for ACH transactions in the USA. 
• General Data Protection Regulation (GDPR): It is applicable in the European Union and sets standards for consumer data protection and privacy. 

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EFT vs. ACH vs. Wire: The difference

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If you’re new to digital payment processing, terms like ACH, Wire, and EFT might be confusing. But they’re less complicated than you think. 

ACH, Wire, and EFT are all associated with electronic payments, but they have some distinctions. 

As discussed earlier as well, EFT is an umbrella term comprising all types of electronic payments. It encompasses ACH and Wire but also includes other forms of online payments, like card transactions and electronic payments.

Automated Clearing House, or ACH, is a payment system that facilitates bank-to-bank electronic payments within the USA. 

Wire is another payment system (like ACH) that enables electronic payments between financial institutions across the globe. It is faster and costlier than ACH. 

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Zomentum Payments can help

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An MSP’s revenue and profitability rely significantly on how fast and smoothly they collect payments. Fast and efficient payment collection means more revenue and growth for your MSP. 

Therefore, it’s critical to have a robust payment processing system in place, and here’s where Zomentum Payments comes into the picture. Zomentum Payments is an automated payment system for MSPs that allows you to collect payments on your invoices and quotes. Set up recurring payments and plug revenue leakage right now. 

Zomentum Payments eliminates international payment barriers and offers enterprise-grade security to help you make transactions with peace of mind.

Collect payments the right way. Switch to Zomentum Payments now.