In banking, a direct deposit (or direct credit) is a deposit of money by a payer directly into a payee's bank account. Direct deposits are most commonly made by businesses in the payment of salaries and wages and for the payment of suppliers' accounts, but the facility can be used for payments for any purpose, such as payment of bills, taxes, and other government charges. Direct deposits are most commonly made by means of electronic funds transfers effected using online, mobile, and telephone banking systems but can also be effected by the physical deposit of money into the payee's bank account.
When making a direct deposit by means of electronic funds transfer, the payer would also normally enter reference information to enable the payee to easily recognise who made the deposit and which account to credit. The reference may be an account number, an invoice number, the payer's name, or some other meaningful identification. To ensure that the payee is aware of the deposit, the payer would commonly follow up by sending to the payee a remittance advice.
The direct deposit facility is often better known by country-specific payment systems used to action these payments, for example:
- Giro in most of Europe,
- Automated Clearing House (ACH) in the United States,
- Direct entry in Australia.
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Alternatives to direct deposit
In situations where a funds recipient does not have a bank account while a payer is obligated to pay by electronic funds transfer, alternative payment arrangements need to be made. For example, a US federal law of 1996 required the federal government to make electronic payments, such as direct deposit available by 1999. As a part of its implementation, the U.S. Treasury Department paired with Comerica Bank and MasterCard in 2008 to offer the Direct Express Debit MasterCard prepaid debit card. The card can be used to make payments to federal benefit recipients who do not have a bank account.
Source of the article : Wikipedia
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