EFT vs NEFT: Difference and Comparison

EFT (Electronic Fund Transfer) is a broad term encompassing various electronic payment methods, including NEFT (National Electronic Funds Transfer), which is a system facilitating interbank transfers within India. NEFT operates in batches, processing transactions at set intervals, typically available during bank working hours, while EFT can refer to a wider range of electronic transfers, including instant payment methods like IMPS (Immediate Payment Service).

Key Takeaways

1. EFT is a generic term for electronic fund transfers, whereas NEFT is a specific Indian system for interbank transfers.
2. NEFT operates in hourly batches, providing structured settlement cycles, while EFT methods can vary in processing time.
3. NEFT transactions are limited to India, while EFT methods are used globally for various purposes, including international transfers.

EFT vs NEFT

The difference between EFT and NEFT is that through EFT, international fund transfer is possible, but NEFT is limited within the country. Both of these transactions have no upper limit. 

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Comparison Table

Feature	EFT	NEFT
Full Name	Electronic Funds Transfer	National Electronic Funds Transfer
Region	Varies by country	India
Settlement	Deferred Net Settlement (DNS)	Deferred Net Settlement (DNS)
Processing	Batches throughout the day	Batches throughout the day
Availability	Varies by country	Weekdays (except 2nd & 4th Saturdays)
Timings	Varies by country	8:00 AM to 7:00 PM IST
Minimum Transfer	Varies by country	No minimum
Maximum Transfer	Varies by country	No maximum (but individual bank limits may apply)
Transaction Speed	Slower (can take several hours or even a day)	Slower (can take several hours or even a day)
Cost	Varies by country and bank	Usually lower than other electronic transfer methods like RTGS

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What is EFT?

How EFT Works:

1. Authorization: The process begins with the sender initiating the transfer, either through online banking, mobile banking apps, or other electronic payment platforms. The sender provides authorization and specifies the amount to be transferred, along with details such as the recipient’s account number, bank name, and routing information.
2. Processing: Once authorized, the sender’s financial institution processes the transaction electronically. This involves verifying the sender’s account balance to ensure sufficient funds are available and routing the payment instructions to the recipient’s bank.
3. Settlement: The recipient’s bank receives the payment instructions and credits the recipient’s account with the transferred funds. The transaction is settled electronically, typically within a few business days, depending on the specific EFT method used.
4. Notification: Both the sender and the recipient may receive electronic notifications confirming the successful completion of the transfer. These notifications serve as a record of the transaction and help ensure transparency and accountability in the payment process.

Types of EFT:

1. ACH (Automated Clearing House): ACH is a widely used EFT system in the United States, facilitating various types of electronic payments, including direct deposits, bill payments, and recurring transactions.
2. Wire Transfers: Wire transfers are a form of EFT that enables near-instantaneous transfer of funds between banks or financial institutions, often used for high-value or time-sensitive transactions.
3. Card-based Transactions: Debit card and credit card transactions also fall under the umbrella of EFT, as funds are electronically transferred from the cardholder’s account to the merchant’s account during a purchase.
4. Mobile and Digital Wallet Payments: With the proliferation of smartphones and digital payment platforms, mobile and digital wallet payments have become increasingly popular forms of EFT, allowing users to send and receive money conveniently using their mobile devices.

 

What is NEFT?

How NEFT Works:

1. Initiation: The NEFT process begins with the sender instructing their bank to transfer a certain amount of money to a recipient’s account maintained with another participating bank. This instruction can be initiated through various channels, including online banking, mobile banking apps, or by visiting a bank branch.
2. Transaction Processing: Once the sender’s bank receives the NEFT instruction, it forwards the transaction details to the RBI’s NEFT system. NEFT operates on a deferred net settlement (DNS) basis, where transactions are processed and settled in batches at fixed intervals throughout the day, typically in hourly slots during bank working hours.
3. Interbank Settlement: The RBI’s NEFT system aggregates all incoming NEFT transactions received from participating banks during a specific batch processing window. These transactions are then settled on a net basis, with funds transferred between banks’ accounts maintained with the RBI to balance out the total inflows and outflows.
4. Recipient Account Crediting: Upon completion of the interbank settlement process, the recipient’s bank receives the credit for the incoming NEFT transaction and subsequently credits the recipient’s account with the transferred funds. This process typically occurs within two hours of the batch settlement, although the actual time may vary depending on the recipient bank’s internal processing policies.

Key Features of NEFT:

1. Availability: NEFT operates on all working days of the week, including weekdays and Saturdays, except for Sundays and bank holidays recognized by the RBI. This ensures that individuals and businesses have access to the NEFT system for conducting electronic fund transfers throughout most of the year.
2. Transaction Limits: NEFT imposes minimum and maximum transaction limits on fund transfers, which may vary depending on the participating bank’s policies and the type of account held by the sender. These limits help regulate the volume and value of transactions processed through the NEFT system, ensuring efficiency and security.
3. Transaction Charges: While NEFT transactions initiated by individuals are typically free of charge or attract nominal fees, businesses and corporate entities may incur transaction charges levied by their respective banks. These charges may vary based on factors such as transaction volume, transaction value, and the sender’s relationship with the bank.

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Main Differences Between EFT and NEFT

1. Scope:
   • EFT (Electronic Funds Transfer) is a broader term encompassing various electronic payment methods, including NEFT.
   • NEFT (National Electronic Funds Transfer) specifically refers to the electronic transfer system used in India for interbank transactions.
2. Geographical Limitation:
   • EFT can be used internationally, allowing transfers between accounts in different countries.
   • NEFT is primarily limited to domestic transfers within India, facilitating interbank transactions across the country.
3. Real-Time vs. Batch Processing:
   • EFT transactions can be processed in real-time, providing immediate transfer of funds between accounts.
   • NEFT transactions are processed in batches at set intervals throughout the day, typically during bank working hours, resulting in a delay in fund transfer compared to real-time methods.
4. Transaction Limits and Fees:
   • EFT may have varying transaction limits and fees depending on the specific method used and the policies of the involved financial institutions.
   • NEFT typically imposes minimum and maximum transaction limits, with varying fees depending on factors such as transaction volume, value, and the type of account held by the sender.
5. Regulatory Oversight:
   • EFT systems may be regulated by different authorities depending on the jurisdiction and the specific electronic payment method employed.
   • NEFT is regulated and managed by the Reserve Bank of India (RBI) in India, ensuring standardization, security, and compliance with regulatory guidelines for interbank fund transfers.

References

1. https://go.gale.com/ps/i.do?id=GALE%7CA537173130&sid=googleScholar&v=2.1&it=r&linkaccess=abs&issn=09762876&p=AONE&sw=w
2. https://rrjournals.com/wp-content/uploads/2018/10/286-291_RRIJM18031054.pdf
3. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1457862