Electronic Fund Transfer 

Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)                    

As defined in the ELECTRONIC FUND TRANSFER ACT, any transfer of funds, other than a transaction that is originated by a paper instrument, that is initiated through an electronic terminal, telephone, or computer or magnetic tape and that orders or authorizes a financial institution to debit or credit an account.

Specifically mentioned in the act are the following:

1.  POS (point-of-sale) transfers.

2.  Automated teller transactions.

3.  Direct deposits electronically of funds, such as deposits of Social Security or
     salary payments, or payments made electronically from an account, such as for
     insurance premiums, agreed to by insurance companies.

4.  Transfers for the purchase or sale of securities.

5.  Transfers by telephone not made pursuant to prearranged plan.

Such types of transactions as the preceding, however, would be included in any broad definition of electronic fund transfers, which comprehensively would include all types of transfers and data processing effected by means of electronic equipment and systems, involving both internal transactions within an institution or firm and external transactions with other institutions or firms.

Commercial debits, which arise when an originator firm uses an AUTOMATED CLEARINGHOUSE unit in the automated clearinghouse electronic clearing and settlement system to collect the payments, include consumer payments, include consumer payments (such as insurance premiums, mortgages, and utilities) and corporate payments (such as accounts receivable and cash concentration).  Commercial credits, which arise when the originator firm uses an automated clearinghouse to make payments, include corporate payments to consumers (such as payroll payments, dividends, and annuities) and corporate payments to other firms (such as accounts payable and payments to credit card merchants).

Included in any comprehensive definition of electronic fund transfers, therefore, would be the following facilities:

1.  Fedwire, the Federal Reserve communications system.  This is an electronic
     communications network connecting Federal Reserve offices, the board,
     member banks, the Treasury, and other government agencies.  Fedwire is used
     for transferring member bank reserve account balances and government
     securities, as well as for transmission of Federal Reserve administrative,
     supervisory, and monetary policy information.  
     See FEDERAL RESERVE COMMUNICATIONS SYSTEM FOR THE
     EIGHTIES.

2.  Culpeper switch, a computerized Federal Reserve facility located in Culpeper,
     Virginia, which serves as a central relay point for messages transmitted
     electronically between Federal Reserve districts on the Fedwire.  Messages
     moving billions of dollars of funds and securities daily are processed by
     Culpeper in electronically coded form.  They originate in commercial banks, are
     sent to Reserve banks, and then are transmited to Culpeper, where they are
     switched to other Federal Reserve banks and in turn to other commercial
     banks.

3.  BANKWIRE, an electronic communications network similar to Fedwire, but
     owned by an association of banks and used to transfer messages between
     subscribing banks.

Consumer convenience in retail banking is facilitated by such types of electronic equipment as the following:

1.  POS (point-of-sale) systems, which allow for transfer of funds between
     accounts, authorization for credit, verification of checks, and provision of related
     services at the time of purchases.  POS terminals are located in shopping
     areas and allow customers of participating financial institutions to effect
     transactions through the use of machine-readable debit cards.

2.  ATM (automated teller machines), which are computer-controlled terminals
     located on bank premises or elsewhere, through which customers of financial
     institutions may make deposits, withdrawals, or other transactions as they would
     through a bank teller.

Summary 

For the future, additional volume is projected for both consumer and commercial electronic banking, including expansion in volume of the automated clearinghouse system.  In the words of the Senate Banking Committee, “this new generation of financial services offers the public significant new choices in personal banking and has the potential to be of great benefit to consumers.”

BIBLIOGRAPHY

Bank Automation Newsletter.  Warren, Gorham and Lamont, Inc., Boston, MA. Monthly.

Bank Systems & Equipment.  Gralla Publications, New York, NY.  Monthly.

EFT Press Alert.  Warren, Gorham & Lamont, Inc. Boston, MA.  Monthly.

Corporate EFT Report.  Biweekly.

The Smart Card.  Business Communications, Norwalk, CT, 1986.

Back to Information