What is Electronic Banking?

Electronic banking, also called electronic fund transfer (EFT), is a system of paperless banking conducted using electronic technology and the Internet. Most financial institutions will issue the consumer an ATM or debit card, along with a PIN (Personal Identification Number). These cards can be used in place of checks when making a purchase. The merchant just scans your card through a card reader and you enter your PIN to authorize the transaction. Your bank then transfers the funds electronically from your account to the merchant's bank.

Electronic banking allows you to have your paycheck deposited automatically in the bank account of your choosing. Social Security makes all benefit payments by EFT. You can arrange to have your regular monthly bills, such as mortgage and car payments, utilities or any other bill you choose, paid automatically each month on the day you choose. No more worries about lost mail or finding a stamp and envelope and remembering to mail them in time to avoid late fees.

Another service of electronic banking is bank-by-phone. You can call your financial institution and make payments by phone, check your account balance or switch money from one account to the other. You can also perform all these functions over the Internet. An advantage of using the Internet for your transactions is that you can print out a copy for documentation if needed.

One thing you need to keep in mind when you use electronic banking is that the funds are deducted from your account quickly, usually the same day as you initiated the transaction. There is no ‘float' while waiting for a check to make its way through the system so you need to make sure the money is in your account.

A fairly recent innovation is the use of electronic check conversion. This process turns your paper check sent to a merchant via mail or used for payment in person, into electronic funds. When you pay for goods in a store, the clerk will take your check and scan it through an electronic machine that copies your bank information as well as the amount of the check. You are then asked to sign a receipt and you receive a copy of that receipt, along with your original check, which should be voided. The bank then sends the information it recorded from your check to your bank electronically and the funds are transferred into the merchant's account. If a check you mail in payment of a bill will be handled in the same manner, there should be a notice of it on the statement that was mailed to you. Again, there cannot be enough emphasis placed on the necessity of having the funds available when you send the check. Most companies charge a fee, much like a bounced check charge, if the transaction does not go through the first time.