Electronic funds transfer
From Wikipedia, the free encyclopedia
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:
- 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
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[edit] 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.[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]. There are over 60,000 participating EFTPOS outlets in Australia. [4]
[edit] Card-based EFT
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 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.
[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. 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.
[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:
| 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.
[edit] Single Message Authorisation/Clearing
Some financial networks operate a single message solution, in which a transaction is authorised and cleared via the same message.
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.
[edit] Authentication
EFT transactions may be accompanied by methods to authenticate the card and the card holder. 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. 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).
EMV cards are smartcard-based payment cards, where the smartcard technology allows for a number of enhanced authentication measures.
- Further information: Credit card, Debit card
[edit] References
- ^ EFTPOS. Merchant banking services. EFTPOS. Bank of Queensland Australia
- ^ Nab - Eftpos
- ^ ATMOSS - Australian Trade Mark Online Search System
- ^ Nab - Eftpos
