Electronic Funds Transfer

Introduction
Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is Direct Deposit, in which payroll is deposited straight into an employee's bank account, although EFT refers to any transfer of funds initiated through an electronic terminal, including credit card, ATM, Fedwire and point-of-sale (POS) transactions. It is used for both credit transfers, such as payroll payments, and for debit transfers, such as mortgage payments.

Two Types of EFT

EFT

Wire Transfer

ACH

Wire Transfer
Wire Transfer
Fed Wire Book Transfer Foreign Wire

Between two banks

Within same bank

Foreign bank

Movement of funds is real time effected immediately

FRB open for fed wires up to 6:00 p.m. Book Transfers are memo posted up until midnight ZBA (Zero Balance Account) sweeps are book transfers Fed Wire Affects banks Reserve Accounts maintained at the FRB Sending banks account at the FRB gets debited Receiving banks account at the FRB gets credited Foreign exchange and Euro dollars through Clearing House for Inter-bank Payments System (CHIPS) 54 New York Banks

Wire Transfer Utilization

When appropriate to use
Time sensitive - Funds need to be moved same day initiated Large dollar amounts

Examples
Debt Service Payments (preserve States credit rating) Funding ACH payments (e.g. payroll direct deposit) Funding investments (e.g., at custodian bank) Adjusting balances (between depository banks) Remitting ESC payments (to US Treasury) DOR accepts wire transfers from corporate taxpayers on an exception basis only

Initiating Wire Transfers

Banks provide corporate customers ability to initiate their own wires via online banking access Templates are used Repetitive Transfers Pre-established ABA# and acct.# Non-Repetitive - Open wire to anywhere State Treasurer initiates all wire transfers for agencies Via Wachovia Connection and BOA Direct As requested by agencies via Core Banking $ystem Results in debit to agencys disbursing / STIF acct.

Agency Logs in

Disb. Acct. at DST

Online Wire System

DSTs Bank

Payees Bank

ACH
ACH Network A batch-process, store and forward for future settlement

Two types of ACH (Automated Clearing House)

ACH ACH Credits

Direct Deposit. Debit Card Account Direct Deposits Always initiated by sender Senders account is debited and receivers account is credited Receivers Acct
Bank account Debit card account

ACH Debits

Electronic Drafts Initiated by sender or receiver If by sender Sender authorizes a third party to initiate transaction If by receiver Receiver initiates transaction

Also referred to as Direct Payments

ACH Utilization
When appropriate to use Large number of payments in a single file (batch) At least one day is available between initiation and settlement Any size dollar amounts Examples Outbound Payroll direct deposit to bank account (ACH credits) Outbound Payroll direct deposit to debit card account (ACH credits) Outbound Vendor payments (ACH credits) Inbound Taxpayer payments (ACH credits or debits)

ACH Transactions can have Addendum Records Remittance data attached Can be interfaced with A/R system DOR requires taxpayers to use TXP format

Governing Org.

ACH Players
3
ACH Operator (FRB)

Trade Group

2
Originating Depository Financial Institution (ODFI)

Receiving Depository Financial Institution (RDFI)

1
Originator (Company / Employer) Receiver (Company / Employee)
Authorization / Enrollment

Primary Differences
Wire Transfers Item Cost - $6.75
Same day funds Transfer almost instantaneous Use for critical payment (e.g. debt service)

ACH Item Cost < 1 penny

Next day funds One day delay in settlement Used for large batch files (e.g., payroll)

Electronic Checks
Loosely used term Refers to two different methods
Electronic Checks

Online Paper Check

ACH Conversions

Online Paper Check Developed by Financial Services Technology Consortium (FSTC) Not-forprofit group of CA banks Initiated using a PIN and digital signature Receiver prints out paper check for deposit ACH Conversions (most common method referred to) Transactions converted to ACH debits (e.g., ARC, POP, WEB, TEL) Services can be provided by third party processors Account verification determined upfront. Guarantees available. Examples of services provided through third-party CyberSource (POP)
Telecheck: CheckFree: AmeriNet: Paymentech:

Applies to consumer checks only, not business checks.

Regulator Governance
Regulation E, per Electronic Funds Transfer Act (EFTA)

Issued by Federal Reserve Bank Covers ACH and debit cards (but not wires or credit cards) Consumer protection oriented Some protection afforded the consumer does not apply to corporate or government customers

NACHA Operating Rules

National Automatic Clearing House Association Applies to ACH transactions only Applicable to both consumer and corporate (including government)
Uniform Commercial Code (UCC) Article 4A

Applies to Wire Transfers Only

Uniform Commercial Code (UCC) Articles 3 and 4 and Reg CC

Applies to negotiable instruments (checks) Reg CC issued by Federal Reserve - Applies to checks not EFT Check 21 (Check image conversion) governed by Reg CC, not Reg E