What is the full form of ECS?

Introduction

Electronic Cleaning system (ECS) is a payment mode which was introduced by the Reserve Bank of India in the 1990s. The ECS is used by various organisations for making payments such as salaries, pensions, dividend interest etc.

Electronic Cleaning Service is mostly used when the funds are periodic and repetitive. In other words, it is the transfer of money from one bank account to many other bank accounts or the transfer of money from multiple bank accounts to one bank account.

Types of ECS

• ECS debit − Individual Payments of EMIs, SIPs, loans etc. Under this, a single account is debited to credit multiple accounts. The recipient needs not to track each payment actively. It also helps to avoid a late payment penalty.

• ECS Credit − When an organisation credits funds to the account of a person such as salaries. Pensions etc. The benefits are credits are received timely, administrative charges and delays can be reduced

Types of ECS based on location

• Local ECS − There are 81 local ECS centres

• Regional ECS − There are 9 regional locations in India.

• National ECS − It is located in Mumbai, India.

Benefits of ECS for financial institutions

• It increases customer satisfaction

• It reduces the use of paper

• Every transaction is recorded

Benefits of ECS for customers

• It is a faster and more convenient method.

• No late payment fees

• No need to visit the bank monthly

• Consumers don't have to remember the due date of payments.

Automated payment system

In an automated payment system, the whole process of the transaction is automatic. It eliminates the need to work manually which in turn reduces the time and effort required. The automated payment system is considered as efficient and cost-effective. When a bank is provided with the mandate to transfer funds with the amount and transaction frequency, the automated payment system takes over.

The automated payment system has various advantages over the traditional methods of payment.

• It reduces the risk of errors

• it is time efficient

• It is a safe mode of transaction

• It eliminates the need for manual intervention

Transaction processing

Transaction processing involves a sequence of steps for transferring the funds. The loan providers use ECS to debit the EMI of the loan on a specific date.

• The mandate is provided by the sender, authorising the transfer of funds.

• After the mandate is registered with the bank, the automated payment system comes into action.

• The system verifies if there are sufficient funds in the bank account of the sender. The bank later authenticates and processes the transaction.

• The settlement of funds is done through RBI’s National Electronic Fund Transfer System.

Interbank fund transfer

The funds are transferred electronically from one bank to the other but in the case of ECS, the funds are transferred by an automated payment system. The use of ECS has gained popularity in India due to the convenient and efficient way of transferring funds. The sender can initiate a transfer at any time from any part of the world and it is secure.

Paperless payment solution

• ECS is an electronic clearing system that facilitates paperless credit/debit transactions.

• It eliminates the use of paper-based payment options. It also provides a faster method for periodic and repetitive payments.

• It reduces the risk of theft and storage needs.

How to Stop Electronic Clearing Services?

Stopping the ECS is very easy. The person is only required to inform the bank.

FAQs

Q1. What is Electronic Cleaning Service and when was it introduced?

Ans: ECS is a payment method for bulk transfer of funds such as bill payments, salaries, pensions etc. The transaction is between multiple bank accounts. It was introduced by the Reserve Bank of India in the 1990s.

Q2. What is an Electronic Cleaning Service?

Ans: It is an electronic fund-transferring scheme introduced by the Reserve Bank of India in the 1990s. It allows to transfer funds from one bank account to multiple bank accounts. It is mostly used when transactions are repetitive and periodic.

Q3. Can the mandate given once be withdrawn?

Ans: Yes, a mandate once given can be withdrawn easily by visiting the bank. It can be easily done without the involvement of the user institution.