An EFT Switch (Electronic Funds Transfer Switch) is a critical financial infrastructure system that facilitates the secure routing, authorization, and settlement of electronic payment transactions between different financial institutions, such as banks, payment processors, and ATM or POS networks. It serves as an intermediary that manages the flow of transaction requests, ensuring that funds are properly debited from the payer’s account and credited to the recipient’s account in real-time or near real-time.

Transaction Routing: The EFT Switch acts as a central hub that routes transaction requests between various endpoints, including ATMs, point-of-sale (POS) terminals, online payment gateways, and mobile payment systems. It efficiently determines the destination financial institution for each transaction based on card details or payment credentials, ensuring the transaction reaches the correct bank or payment processor.

Authorization: Once a transaction request is routed, the EFT Switch communicates with the cardholder’s issuing bank or financial institution to verify and authorize the transaction. The authorization process typically includes checking for sufficient funds, ensuring the account is valid, and performing fraud detection to mitigate risks.

After authorization, the EFT Switch manages the settlement process, which involves transferring the appropriate funds between the payer’s and recipient’s financial institutions. It ensures accurate transaction posting and reconciliation, typically in real-time or at the end of the transaction day, depending on the system configuration.

Security: EFT Switches employ robust security protocols, including encryption, tokenization, and multi-factor authentication, to ensure that sensitive payment data is protected during the transaction process. They also comply with industry security standards like PCI-DSS (Payment Card Industry Data Security Standard) to protect against fraud and data breaches.

Interoperability: The EFT Switch supports interoperability between different financial institutions and payment networks, allowing seamless cross-border and multi-institution transactions. This is essential for transactions involving multiple banks, payment processors, or international networks like Visa, MasterCard, and regional networks.

Real-time Processing: Most EFT Switches are designed for high-speed, real-time transaction processing, ensuring that payments are executed and confirmed quickly, enhancing customer experience and operational efficiency.