How Money Transfer Works

In the past, when one needed to send money to someone living someplace else, one had to write a check, put it inside an envelope, and mail it by post. After days or weeks, the recipient would go to a branch of the bank that issued the check to deposit it into their bank account or exchange it for cash.

Today, if you need to send money from the United Arab Emirates to, say, the Philippines, you may be able to do it all by using the mobile application of a money transfer company in the UAE.

Sending money overseas can be a simple matter of naming your beneficiary, indicating the transaction amount, choosing your preferred payment method, selecting how your recipient will receive the money, and clicking on “Proceed.”

It should take you less than a couple of minutes to do everything. Even more incredibly, the money transfer can take place quickly. Once you’ve sent the money, it can instantly become available to your recipient.

Your remittance may show up in their bank or credit card account or become available for door-to-door delivery or cash pickup within seconds of your confirmed and successful money transfer transaction.

How is this possible? The answer: electronic funds transfer.

Electronic Funds Transfer

Electronic funds transfer refers to the digital movement of money, typically from one bank account (or a mobile wallet account or an internet bank account) to another.

Everything happens electronically. Digital data pertaining to the money is transmitted through the internet from the source account to the destination account.

No actual money (i.e., cash) changes hands, but the technology ensures the transaction is automatically logged in both the sending and receiving accounts.

Therefore, when you pay for your groceries using your debit card, your bank account automatically gets debited by the total cost of your groceries. At the same time, the supermarket’s account gets credited with the sum corresponding to the amount deducted from your account.

It’s the same when you use your mobile wallet account to send money to another person. Your mobile wallet account will transmit the data to the receiving account. Money is deducted from your mobile wallet or a connected payment method (e.g., bank account, credit card).

The exact amount is then credited to the recipient’s linked account (e.g., bank account, virtual wallet) or becomes available through door-to-door delivery or cash pickup at a bank or a money transfer agent.

Electronic funds transfer also includes going to an automated teller machine (ATM) and transferring funds from your bank account to another person’s account.

Using your online banking account to load your mobile phone with pay-as-you-go phone credits, funding your prepaid shopping card, transferring money to your family, and paying merchants are other typical applications of electronic funds transfers.

Different Types of Electronic Funds Transfers

Electronic funds transfers can be automated clearing house (ACH), wire, real-time payment (RTP), and third-party payment processor (TPPP) transfers.

Automated Clearing House Transfers

ACH transfers go through the automated clearing house administered and operated by the National Automated Clearing House Association (NACHA).

Banks, credit unions, corporations, and other entities can use the ACH network to process electronic transactions in batches. This automated batch processing makes ACH a cost-efficient way of transferring funds electronically.

ACH transfers typically include payroll direct deposits, automated loan payment debits, and person-to-person payments. These transfers can be for one-time or recurring transactions.

ACH transfers typically take three business days or longer. ACH file processing takes place at specific timings throughout the day, and banks usually have ACH request cut-off times. Furthermore, receiving entities must set up, confirm receipt, and clear incoming ACH transfers.

There’s now same-day ACH processing for those who prefer faster transfer turnarounds. Naturally, same-day ACH transfers cost more than regular ACH transfers.

Wire Transfers

Unlike ACH transfers, wire transfers are processed not in batches but per transaction. There is also more coordination between the sending and receiving institutions, as these are bank-to-bank transactions.

The money transfer, in this case, is processed through a wire network like the Federal Reserve Wire Network (FEDWIRE) or the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Thus, if your bank asks you for the receiving bank’s SWIFT code, you’ll know the bank will perform your transfer through the SWIFT wire network.

There may be wire transfer timings as well. If you want the funds received on the same day, you must send your wire transfer request before your bank/institution’s wire transfer cut-off time. Generally, however, wire transfers typically take around three to five days.

Wire transfers are relatively more expensive than ACH transfers. The sending institution can charge a fee for the wire transfer request, and the receiving institution may also charge a commission for receiving the transfer.

Real-Time Payment Transfers

RTP transfers are used in the United States and are processed through the real-time payments network owned and operated by The Clearing House. It works similarly to the ACH network operated by NACHA, except RTP provides real-time payment processing. Thus, it takes only seconds for money sent to be received.

Third-Party Payment Processor Transfers

Third-party payment processors are intermediary entities that make the ACH and RTP networks accessible to the general public. These processors will accept payment and remittance requests, typically through mobile applications and web-based interfaces, then group such requests. They then process the requests using the ACH or the RTP network.

Merchants often use TPPPs to receive payments from their customers, especially online, to cover e-commerce transactions.

How About Digital Wallets?

Digital wallets are applications that let you store electronic money (money transferred from your linked bank account or credit card or through a point-of-sale transaction). You can use this electronic money to pay merchants or to transfer funds to other people’s digital wallets and bank accounts.

Digital or electronic money wallets make transferring and receiving funds more convenient. You can think of them merely as tools to expedite electronic fund transfers.

Fast and Convenient Money Transfers

Gone are the days when sending money meant writing and mailing a check. Today, you don’t even have to use cash to pay for your food, shopping, and groceries.

All you need to do is transfer money electronically from your account (whether it be your credit card, bank account, or virtual wallet account) to your recipient’s account.

You can do all this as long as you have internet connectivity and a mobile application (or a web-based interface) you can use to initiate the transfer or a terminal that will facilitate it for you.

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