ECS (Electronic Clearing Service)

What is ECS?

The motto of digital India is to go cashless and there are many services and apps available which helps users to make cashless payment. One such mode of payment is CS which can be expanded as Electronic Clearing Service. It is a method that is used by big organizations to transfer funds in bulk electronically.

ECS is used for transferring those funds that have to be sent periodically. This type of fund transfer includes fees, salaries, interest, pensions, loan installments, dividends, etc. Bills can also be paid and dues can be cleared through this method.

It can be said that the service can be used to transfer money from one bank account to multiple accounts or from multiple accounts to a single one.

Types of ECS

ECS is of two types and we will discuss them here in detail.

ECS Credit

ECS Credit is a service which can be used to raise debit against a customer’s bank account. This method is used to make payments for interest, dividends, salaries, pensions, and many more.

ECS Debit

ECS Debit is a service that large organizations use to raise debit in numerous bank accounts. These customers can be borrowers, investors, and many more. ECS Debit can be used for bill payments, tax collections, insurance premiums, installment payments, and many more.

Types of ECS on the basis of Location

There are three types of ECS on the basis of location and they are as follows −

Local ECS

There are 81 local ECSs that RBI operates all over India.

Regional ECS

There are 9 regional ECSs that RBI operates all over India.

National ECS

There is only 1 national ECS in Mumbai

How does ECS work?

ECS informs the bank of the payer that a payment has to be made. The institution is authorized by providing a mandate which is used to credit or debit the required amount. The mandate consists of the details of the payer’s bank branch and other bank details. The institution has to provide transfer dates and the amount that is credited or debited. The bank will send a notification regarding the credit or debit of an account.

Difference between NACH and ECS

NACH can be expanded as National Automated, Clearing House and it is being used to replace ECS. Let us see some of the differences between NACH and ECS.

• ECS is not available everywhere and is operated by RBI but NACH will be available all over the country.

• ECS is manual while NACH is automatic

• NACH can activate a mandate within 10 days while ECS takes 30 days

• The presentation and settlement process time taken by ECS is 3 to 4 days while NACH will do this in 24 hours

• NACH has an online dispute management system but is not available with ECS

Advantages of ECS

• Paperwork for financial institutions is reduced

• The account can be credited by a bank after matching the name and account number after the activation of ECS

• If the details do not match, the process of the transaction is stopped

• All transactions are recorded

• Customers receive the sum within 3- 4 days

• Visiting banks is not necessary for encashing cheques

• Encryption is used by ECS to provide security to transactions

Disadvantages of ECS

• The service is available in big cities and not in small towns

• The service covers only those amounts that are more than Rs. 1 lakh

• The process of activation is time-consuming

• Mandates depend on paperwork

• Limited scope of operation

Conclusion

ECS (Electronic Clearing Service) is a service which is used by big organizations for money transfers in bulk. These transfers include payment of salaries, pensions, installments, bills, and many more. Now NACH has been introduced which will gradually replace ECS.

FAQs

FAQ 1: What is ECS used for?

Ans: ECS is used to make bulk money transfers by big organizations and this includes payment of bills, salaries, installments, etc.

FAQ 2: Is RCS secure?

Ans: Yes! ECS is secure as all transactions are encrypted.

FAQ 3: Does ECS use paperwork

Ans: Yes! Mandates depend on paperwork.

FAQ 4: How much time does ECS take to activate a mandate?

Ans: A mandate can be activated within a period of 30 days?

FAQ 5: How many types of ECS are there?

Ans: ECS are of two types which are ECS Debit and ECS Credit. Omni the basis of location ECS can be categorized as Local ECS, Regional ECS, and National ECS