Electronic funds transfer systems are those systems which are used to perform an electronic funds transfer. There are a number of different systems that fit this bill, from systems that had been in much wider use at the time of the Electronic Funds Transfer Act’s implementation, to systems that have since become significantly more important. Each of these systems performs transactions that can be qualified as electronic fund transfers.
The first, and likely still most known electronic funds transfer system, is that of a card used for a payment. This would cover both credit cards and debit cards, as well as charge cards and stored-value cards. All of these different types of cards would be systems of electronic fund transfer because each of them eschews the paper system of negotiable instruments and deal strictly with electronic transactions.
When such a card is read by a machine, the transaction is posted electronically wherever necessary, whether to the credit card account, or to the checking account attached to the debit card. Most of the time, these electronic funds transfer systems involve magnetic strips which allow the card to be read, though some of them are smart cards with some form of integrated circuit which can send and receive information, or proximity cards, which similarly contain integrated circuits.
Next are direct deposits. Direct depositing counts as an electronic fund transfer system for the same reason that the cards above do: the system allows for bypassing of the paper or physical negotiable instrument and performs the entire transaction electronically. A direct deposit is used generally by employers to post salaries directly into the accounts of employees, as opposed to granting those employees physical checks. It ensures that the check cannot be lost and that the transaction has the speed and surety of electronic fund transfer systems in general.
Direct debit payments are another type of electronic funds transfer system. Direct debit payments are often seen in Internet transactions when the customer submits the information for his or her debit card in order to make a payment on a given item. The company actually would be submitting the payment with the permission of the customer. The difference between this type of transaction and a standard negotiable instrument transaction is that the company is writing the order to pay, as well as making itself the recipient by acting as the agent for the customer, essentially.
Electronic billing is an electronic funds transfer system, in general, whether it be used for utilities or for some form of online banking. As long as the paper documents are eschewed in favor of instantaneous transactions performed via electronics, through the Internet or even over the phone, then the system would count as an electronic funds transfer system.
Wire transfers compose the final primary electronic fund transfer system. These are normally used as commercial electronic fund transfers, as companies transfer large sums through the transaction agencies like Fedwire or CHIPS. These are again transactions which occur entirely electronically so as to speed up the transaction and avoid the costs of performing the transaction through paper.