Electronic funds transfer

Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically. A computer is a Machine that manipulates data according to a list of instructions. A financial transaction involves a change in the Status of the finances of two or more businesses or individuals

The term is used for a number of different concepts:

Cardholder-initiated transactions, where a cardholder makes use of a payment card
Direct deposit payroll payments for a business to its employees, possibly via a payroll services company
Direct debit payments from customer to business, where the transaction is initiated by the business with customer permission
Electronic bill payment in online banking, which may be delivered by EFT or paper check
Transactions involving stored value of electronic money, possibly in a private currency
Wire transfer via an international banking network (generally carries a higher fee)
Electronic Benefit Transfer

1 EFTPOS
2 Card-based EFT
3 References
4 See also
5 External link

EFTPOS

EFTPOS (short for Electronic Funds Transfer at Point of Sale), is an Australian and New Zealand electronic processing system for credit cards, debit cards and charge cards. The term payment card covers a range of different cards that can be presented by a cardholder to make a Payment. Direct debit or direct withdrawal is a Payment system that allows an organisation to instruct their bank to collect varying amounts directly from customers' accounts Electronic bill payment is a feature of Online banking, similar in its effect to a Giro, allowing a depositor to send money from his Demand account to a Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual Bank, Electronic money (also known as e-money, electronic cash, electronic currency, digital money, digital cash or digital currency A private currency is a Currency issued by a private institution Wire transfer is a method of transferring money from one entity to another Electronic Benefit Transfer (EBT is an electronic system in the United States that allows state governments to provide benefits to authorized recipients via a plastic debit Point of sale or point of service ( POS or PoS) can mean a retail shop, a checkout counter in a shop or the location where a transaction For a topic outline on this subject see List of basic Australia topics. New Zealand is an Island country in the south-western Pacific Ocean comprising two main landmasses (the North Island and the South Island A credit card is part of a system of Payments named after the small Plastic card issued to users of the system A debit card (also known as a bank card) is a plastic card which provides an alternative payment method to Cash when making purchases ^[1] It also allows users of the system to withdraw cash at the time of purchasing a product or service through the merchant's EFTPOS terminal. ^[2] The name and logo for EFTPOS in Australia were originally owned by the National Australia Bank and were trade marks from 1986 until 1991^[3]. National Australia Bank (or NAB) is the second largest financial institution by market capitalisation in Australia after Commonwealth Bank. A trademark or trade mark, represented by the symbols ™ and ®, or mark is a distinctive sign or indicator used by an individual Year 1986 ( MCMLXXXVI) was a Common year starting on Wednesday (link displays 1986 Gregorian calendar) Year 1991 ( MCMXCI) was a Common year starting on Tuesday (link will display full calendar of the Gregorian Calendar. There are over 60,000 participating EFTPOS outlets in Australia. ^[4]

Card-based EFT

Credit cards

EFT may be initiated by a cardholder when a payment card such as a credit card or debit card is used. The term payment card covers a range of different cards that can be presented by a cardholder to make a Payment. A credit card is part of a system of Payments named after the small Plastic card issued to users of the system A debit card (also known as a bank card) is a plastic card which provides an alternative payment method to Cash when making purchases This may take place at an automated teller machine (ATM) or point of sale (POS), or when the card is not present, which covers cards used for mail order, telephone order and internet purchases. Point of sale or point of service ( POS or PoS) can mean a retail shop, a checkout counter in a shop or the location where a transaction

Card-based EFT transactions are often covered by the ISO 8583 standard. ISO 8583 Standard for Financial Transaction Card Originated Messages - Interchange message specifications is the International Organization for Standardization standard for systems

Transaction types

A number of transaction types may be performed, including the following:

Sale: where the cardholder pays for goods or service
Refund: where a merchant refunds an earlier payment made by a cardholder
Withdrawal: the cardholder withdraws funds from their account, e. g. from an ATM. The term Cash Advance may also be used, typically when the funds are advanced by a merchant rather than at an ATM
Deposit: where a cardholder deposits funds to their own account (typically at an ATM)
Cashback: where a cardholder withdraws funds from their own account at the same time as making a purchase
Inter-account transfer: transferring funds between linked accounts belonging to the same cardholder
Payment: transferring funds to a third party account
Enquiry: a transaction without financial impact, for instance balance enquiry, available funds enquiry, linked accounts enquiry, or request for a statement of recent transactions on the account
E top-up: where a cardholder can use a device (typically POS or ATM) to add funds (top-up) their pre-pay mobile phone
Mini-statement: where a cardholder uses a device (typically and ATM) to obtain details of recent transactions on their account
Administrative: this covers a variety of non-financial transactions including PIN change

The transaction types offered depend on the terminal. An ATM would offer different transactions from a POS terminal, for instance.

Authorisation

EFT transactions require communication between a number of parties. When a card is used at a merchant or ATM, the transaction is first routed to an acquirer, then through a number of networks to the issuer where the cardholder's account is held. An acquirer (or Acquiring bank) is a member of a card scheme(s for example MasterCard and/or Visa, which maintains merchant relationships and receives An issuing bank is a Bank that offers Card association branded payment cards directly to consumers.

A transaction may be authorised offline by any of these entities through a stand-in agreement. Stand-in authorisation may be used when a communication link is not available, or simply to save communication cost or time. Stand-in is subject to the transaction amount being below agreed limits. These limits are calculated based on the risk of authorising a transaction offline, and thus vary between merchants and card types. Offline transactions may be subject to other security checks such as checking the card number against a 'hotcard' (stolen card) list, velocity checks (limiting the number of offline transactions allowed by a cardholder) and random online authorisation.

Dual Message Authorisation/Clearing

Depending on the business rules of the issuer, a "hold" may be placed on the funds authorised. An issuing bank is a Bank that offers Card association branded payment cards directly to consumers. This hold reserves that amount of money for a defined period. If a transaction is not cleared within the defined period then the "hold" will be removed and the funds made available again. In Banking and Finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled (see settlement

Example - Purchase for £10 on Day 2 never completes so hold removed on Day 4:

	Cleared Balance	Available Balance
Day 1	£100	£100
Day 2	£100	£90 (Hold for a purchase of £10)
Day 3	£100	£90
Day 4	£100	£100 (Hold for £10 purchase removed)

Example - Purchase for £10 on Day 2 completes on Day 4:

	Cleared Balance	Available Balance
Day 1	£100	£100
Day 2	£100	£90 (Hold for a purchase of £10)
Day 3	£100	£90
Day 4	£90	£90 (Transaction completes. Hold removed. Both balances updated with purchase amount)

An offline process, driven by the networks' clearing systems, generates clearing files which are sent to the card issuers on a daily basis. These files contain the completions messages to the on-line authorisations.

In addition, not all transactions in a dual-message environment require authorisation. Depending on the type of card used, and the floor-limit of the merchant, it may be that there are transactions in the clearing files which have not been authorised on-line. This is a financial exposure for banks as they have to honour the clearing records regardless of the balance on the cardholder's account.

Example - Purchase for £30 on Day 2 for a transaction not requiring authorisation:

	Cleared Balance	Available Balance
Day 1	£10	£10
Day 2	-£20	-£20 (Offline purchase of £30)

This transaction has to be applied even if the cardholder does not have sufficient funds or an overdraft.

Single Message Authorisation/Clearing

Some financial networks operate a single message solution, in which a transaction is authorised and cleared via the same message. In Banking and Finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled (see settlement

A transaction will be authorised via a pre-authorisation step, where the merchant requests the issuer to reserve an amount on the cardholder's account for a specific time, followed by completion, where the merchant requests an amount blocked earlier with a pre-authorisation. This transaction flow in two steps is often used in businesses such as hotels and car rental where the final amount is not known, and the pre-authorisation is made based on an estimated amount. Completion may form part of a settlement process, typically performed at the end of the day when the day's completed transactions are submitted. All these messages will be sent "on-line" from the merchant acquirer to the issuing bank.

Authentication

EFT transactions may be accompanied by methods to authenticate the card and the card holder. Authentication (from Greek αυθεντικός real or genuine from authentes author is the act of establishing or confirming something (or someone as The merchant may manually verify the card holder's signature, or the card holder's Personal identification number (PIN) may be sent online in an encrypted form for validation by the card issuer. A personal identification number (PIN is a secret numeric Password shared between a user and a system that can be used to authenticate the user to the system Other information may be included in the transaction, some of which is not visible to the card holder (for instance magnetic stripe data), and some of which may be requested from the card holder (for instance the card holder's address or the CVV2 value printed on the card). A magnetic stripe card is a type of card capable of storing Data by modifying the Magnetism of tiny iron-based magnetic particles on a band of magnetic material The Card Security Code ( CSC) sometimes called Card Verification Value (CVV, Card Verification Value Code (CVVC, Card Verification Code (CVC

EMV cards are smartcard-based payment cards, where the smartcard technology allows for a number of enhanced authentication measures. EMV is a standard for interoperation of IC cards ("Chip cards" and IC capable POS terminals and ATM 's for authenticating credit A smart card, chip card, or Integrated circuit card ( ICC) is any pocket-sized card with embedded integrated

Further information: Credit card, Debit card

References

External link

MAPESA, a blog specialised on money transfer, remittances and cards issues

A credit card is part of a system of Payments named after the small Plastic card issued to users of the system A debit card (also known as a bank card) is a plastic card which provides an alternative payment method to Cash when making purchases A debit card (also known as a bank card) is a plastic card which provides an alternative payment method to Cash when making purchases Wire transfer is a method of transferring money from one entity to another Automated Clearing House (ACH is the name of an electronic network for financial transactions in the United States.

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