Evolution of EFT System

The roots of electronic payment can be traced back to 1871 when Western Union initiated the electronic fund transfer (EFT) in the U.S. In 1871, Western Union began using EFTs to transfer financial resources without the need for a physical exchange of money. The major milestones in the evolution of payment technologies are hereunder.

Telegraphic Transfer:

The Origins of Electronic Fund Transfers: The concept of electronic fund transfers can be traced back to the early days of telegraphy in the mid-19th century. Telegraph companies began offering money transfer services, allowing individuals to send funds remotely by transmitting coded messages to designated recipients.  Nowadays, Interbank Transfer is done mostly through a transfer of funds electronically to accounts in other banks through NEFT, RTGS, SWIFT, IMPS, and UPI in India.

Automated Clearing House (ACH)

In the late 1960s and early 1970s, the ACH was developed to batch-process large volumes of transactions. The Automated Clearing House (ACH) is a networked system designed to process large volumes of credit and debit transactions in batches. At its core, ACH operates on a batch processing system. Instead of processing transactions in real time, banks accumulate ACH requests throughout the day. These are then grouped and processed in batches.

Debit cards

In the 1980s, the introduction of debit cards transformed EFTs. Debit cards are issued by banks by linking them to individual customers like SB/Current account holders,(in case of proprietary concerns of Current Account/Cash Credit account, a card will be issued in the name of the proprietor). The card transaction will be authorized for payment only after the debit transaction takes place in the card holder’s bank account. Thus the debit card payment will not be approved at merchant establishment/ATM if the balance in the account is insufficient to cover the transaction.

RTGS and NEFT

In the late 20th century, RTGS and NEFT systems enabled the immediate settlement of financial transactions. RTGS (Real Time Gross Settlement) & NEFT (National Electronic Funds Transfer) transactions are the fastest electronic funds transfer systems available in India. Under the above systems, funds can be transferred from a bank by its customer to their own account or third parties having their account with another bank across the country. The RTGS and NEFT transactions are distinguished by the processing time taken by them. In RTGS, the processing of instructions takes place instantly at the time they are received rather than at some later time. NEFT operates in batches on an hourly basis.

Online banking

Online banking, also known as internet banking, virtual banking, web banking, or home banking, is a system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution’s website or mobile app. Online banking began in the late 1990s. ICICI was the first bank in India to introduce Internet banking to its customers in 1996. With lower internet costs and increased awareness about electronic media, online banking established itself only in 1999.

Digital wallets

Google is often cited as the company that offered the first digital wallet. In 2011 it launched Google Wallet (now known as Google Pay Send and part of Google Pay). Ahead of its time, it was used on only one phone model and only with Mastercards issued by Citibank. A digital wallet also known as an e-wallet or mobile wallet utilizes Near Field Communication (NFC) technology to facilitate secure, wireless connections between smartphones and credential readers. This technology enables fast, touch-free authentication, enhancing both security and convenience. Digital wallets allow users to link to credit and/or debit cards, and make payments by tapping their NFC-enabled device against a point-of-sale terminal.

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