Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically. The term is used for a number of different concepts:

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.[1]

European banks and card companies also sometimes reference "EFTPOS" as the system used for processing card transactions through terminals on points of sale, though the system is not the trademarked Australian/New Zealand variant.

EFT may be initiated by a cardholder when a payment card such as a credit card or debit card is used. 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.

Card-based EFT transactions are often covered by the ISO 8583 standard.

[edit] 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 an 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.

[edit] 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.

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, known as floor 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.

Before online authorisation was standard practice and credit cards were processed using manual vouchers, each merchant would agree a limit ("floor limit) with his bank above which he must telephone for an authorisation code. If this was not carried out and the transaction subsequently was refused by the issuer ("bounced"), the merchant would not be entitled to a refund.

[edit] Dual Message Authorisation/Clearing

Depending on the business rules of the issuer, a "hold" may be placed on the funds authorised. 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.

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