Till about a decade ago, sending and receiving money was a challenge as processing and reconciliation took time. In many cases, the money transfer process was limited to banking hours and didn’t happen on bank holidays and weekends.
Transferring money from one bank account to another has become quick and simple. Technological advancements have even simplified bulk money transfer.
However, now all types of digital payments are processed 24/7. This is possible due to Electronic Clearing Service (ECS).
In this blog, we will cover ECS, its usage, and its benefits.
What is Electronic Clearing Service and its usage?
Electronic Clearing Service is an online payment system used to make or receive bulk payments that are recurring in nature, such as salary, pension, dividends, etc.
It is also used to receive recurring bulk payments from multiple sources. A few use cases include electricity bills, phone bills, loan instalments, insurance premiums, SIP investments in mutual funds, etc.
In short, ECS enables bulk payment transactions that are repetitive in nature from one bank account to many or vice-versa.
Electronic Clearing Service was first introduced by the Department of Posts in Mumbai on August 9, 2003, on an experimental basis to transfer investors their monthly earned interest. Later, the RBI expanded the scope of ECS and took it to the national level.
How many ECS locations are managed by RBI?
There are three broad categories of ECS Schemes:
- Local ECS
- Regional ECS
- National ECS
These schemes are either operated by the RBI or by other commercial banks on behalf of the RBI. NACH is also one of the forms of ECS system operated by National Payments Corporation of India.
Also Read: NACH Mandate: Meaning, Types, Benefits, and More
The ECS scheme works from 15 different centres managed by the RBI. Apart from these, SBI and Punjab National Bank manage ECS schemes from 21 and 36 locations, respectively.
Here is a list of ECS locations managed by the RBI and SBI as of 30 September 2011.
| ECS Managed by the RBI | ECS Managed by SBI |
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What are the different types of ECS?
Since ECS can be used for both sending and accepting bulk payments, there are two types of ECS schemes:
- ECS Debit: Institutions that need to accept money from a large number of users on a recurring basis use. For example, ECS Debit. Companies that provide utility services, accept mutual funds investments, insurance premiums, etc. rely heavily on the ECS Debit system to debit money from a large number of customers.
- ECS Credit: ECS Credit system is used when businesses need to make payments to a large number of people with bank accounts that have branches within the jurisdiction of an ECS Centre. ECS Credit is useful for bulk transfer of money from one bank account to multiple bank accounts for payments such as salary, pension, dividend, interest, etc.
How does ECS Debit work?
- The ECS Debit system requires companies, banks, or institutions to receive mandates from their users for collection of recurring payments such as utility bills, home loan EMIs, insurance premiums, etc.
- Users’ mandates must be certified by their banks and have details such as their names, account numbers, amount, name of the bank, etc.
- Once the mandate is given, companies prepare transaction data on electronic media and submit the encrypted data to the local Clearing House through their banks.
- The local Clearing House validates and processes the data and sends it for the inter-bank settlement. Upon validation, users’ accounts get debited and the companies’ bank receives the money.
Benefits of ECS Debit
- With ECS Debit, companies can collect payments from their users faster and manage their cash better.
- Users need not go to banks and wait in long queues to make payments.
- ECS Debit ensures there is no delay in processing the payments once customers have given their mandates.
How does ECS Credit work?
- Businesses that need to make recurring bulk payments have to prepare the payment data electronically and submit them to their banks (Sponsor Bank).
- The Sponsor Bank provides the payment data to the local bankers’ Clearing House, which is managed by the RBI, State Bank of India, and associate banks.
- On receiving this authorisation, the Clearing House will process the data and work out an inter-bank funds settlement.
- The Clearing House debits the Sponsor Bank’s account and credits the accounts of the beneficiaries’ banks.
- Later, the Clearing House will provide credit reports to beneficiaries’ bank branches. These reports will have beneficiaries’ details such as their names, account type, account numbers, and the respective amounts.
Benefits of ECS Credit
- Since businesses don’t have to send documents to banks by post, there is no fraudulent encashment or any other loss while the documents are in transit.
- ECS Credit makes reconciliation faster and automatic. As soon as the payment is done, businesses get payment confirmation from their bank.
- Employees and others receive their payment on the due date without any delay.
Frequently Asked Questions
Is there any limit to individual payments in ECS?
There is no such limit set by the RBI for either debit or credit of money using ECS.
Does the ECS system allow customers to set a limit on the debit amount or the validity period for automatic debits?
Individual customers and companies that use ECS can together decide what ceiling they want regarding the amount and the time validity for auto debits while creating the mandate.
Can ECS be used to transfer funds to Non-Resident External (NRE) and Non-Resident Ordinary (NRO) accounts?
Yes, businesses can leverage ECS to transfer funds to NRE and NRO accounts. The fund transfer must be done according to the guidelines of the Foreign Exchange Management Act, 2000 (FEMA) and Wire Transfer Guidelines.
Are there any processing charges levied under ECS Credit or Debit?
The Reserve Bank of India has deregulated the charges to be levied by sponsor banks from companies. However, in the case of ECS Credit, originating banks are required to pay a nominal charge of 25 paise per transaction to the Clearing House and destination bank.
Similarly, in the case of ECS Debit, originating banks are required to pay 25 paise and 50 paise per transaction to the Clearing House and destination bank respectively.
Can users or customers cancel their mandates?
Yes, it can be done. If customers want to stop a mandate, they have to give prior notice to the company or bank. It is the latter’s responsibility to cancel the mandate.
