Wire Transfer vs Electronic Fund Transfer

In today’s world sending money across the globe is simpler than ever before. Electronic fund transfer has changed the nature of our transactions whether it be nearby or at the other end of the globe. In this article we explain wire transfer vs electronic fund transfer. 

What is an Electronic Fund Transfer?

EFT is the abbreviation for electronic fund transfer. An EFT encompasses any electronic transfer of funds.  This includes:

• Telephone-based transfers
• Computer-based transfers 
• ATM transfers
• Direct Debit
• E-checks

Time taken by an Electronic Fund Transfer 

The type of EFT will determine the time taken. The EFT should take from the next business day to up to three working days. 

What is a Wire Transfer?

A wire transfer is an electronic transfer of funds connecting individuals/entities through banking and other financial institution networks. Secure messaging systems such as Swift send instructions in order for two banks/ financial institutions to settle payments. Wire transfers are processed immediately. International wire transfers may take upto several working days. 

Wire Transfer Vs Electronic Fund Transfer 

A wire transfer is one example of an electronic fund transfer. EFTs refer to the entire gamut of electronic payments. 

There are certain advantages to using a wire transfer rather than other EFTs. The most obvious one is speed. Wire transfers can be sent immediately whereas other EFTs can take longer. The security of wire transfers is also an important consideration. Wire transfers generally have more secure protocols than other EFTs. Speed and security are the advantages of wire transfers. 

This very speed that makes wire transfers attractive may also lead to increased fees. A wire transfer can cost anywhere from $20 to $50. Other EFTs usually have a lower price. 

How do Wire Transfers Work?

Wire transfers will normally go from one bank to the other bank using the SWIFT network. SWIFT is the Society for Worldwide Interbank Financial Telecommunication.

The SWIFT network is a secure messaging system utilized by banks to send information. This includes sending wire transfer details to one another worldwide.

This is the general process for a wire transfer:

Step 1: The sender must fill out an electronic or manual wire transfer form which tells their bank to pay the specified amount to a specific person or entity. Some of the details the form requires are the receiver’s:

• Name and address
• Bank Name and Address
• Account Number 
• Branch
• IBAN, ABA, SWIFT, or BIC code
• Location 
• Country

Step 2: The remitting bank takes all the details and sends them through a secure messaging system such as Fedwire or Swift to the receiver’s bank telling it to credit the particular customer’s account. 

Step 3: The receiver’s bank now authenticates the instructions that have been received and credits the account of the customer..

How do Electronic Fund Transfers Work 

A large portion of Electronic Fund Transfers are cleared through an automated clearing house (ACH) in the US, or via a BACS payment in the UK.

ACH transactions are usually  more secure and lesser in cost than wire transfers. They will, however,  take longer to appear in the recipient account.

How card payments generally work:

Step 1: The customer or cardholder swipes their card or enters their pin at an electronic terminal or an online merchant store. Merchants usually specify the types of cards they accept.

Step 2: Through the payment terminal, the merchant sends the transaction information to a payment processor or acquiring bank – a financial institution appointed by the merchant to handle financial transactions on its behalf.

Step 3: The acquiring bank routes the transaction to the payment network which could be Visa, Mastercard, American Express, Discover, or any other card.

Step 4: The payment network routes the transaction to the issuing bank which is the customer’s bank. Mastercard uses a network called Banknet while Visa uses its VisaNet network to route the transaction.

Step 5: Based on the transaction information from the payment network, the card issuer either approves or rejects the transaction. Insufficient balance and inconsistent card information are some of the main causes of card transactions being declined. Whatever the outcome information is rerouted through the payment network back to the acquiring bank.

Step 6: The merchant gets a response code at their terminal from the acquiring bank and the transaction is finalised. The rest of the process comprises clearing and settlement transactions where the payment processor deposits funds to the merchant’s account at a pre-agreed fee.

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