The Electronic Clearing Service (ECS) is one of the main drivers of digital transactions in India. This facility allows customers to automate fund transfers from one bank account to another.
To know more about the ECS mechanism in banking, its types, how it works and more, read on.
What is an Electronic Clearing Service?
Here are some details related to the ECS mechanism:
The Electronic Clearing Service is generally used for making bulk transfers that are both repetitive and periodic in nature
Large institutions use this method for executing transfers, like salaries, interest and dividend payments, loan instalments and more
ECS also handles transactions processed under the National Automated Clearing House (NACH)
What are the Types of ECS?
There are two categories of electronic clearing systems in banking:
ECS Credit: Institutions use ECS credit by raising debit against their bank account to make transfers of salaries or dividends to large beneficiaries
ECS Debit: Large institutions use this service to raise debits to a large number of customers of utility services, investments, loans, etc.
How to Opt for an ECS Mandate
Here is how you can avail of the electronic clearing system:
Step 1: Visit your nearby bank branch and collect the ECS mandate
Step 2: Provide necessary details to the bank authorities, including the account number, account holder’s name, branch name and more
Step 3: The bank will send these details for scrutiny to the National Payments Corporation of India (NPCI) after verifying them
Step 4: The bank will debit the specified amount through the ECS mandate once NPCI completes the scrutiny
Benefits of Opting for an ECS Mandate
Here are some of the advantages of utilising the electronic clearing service:
The ECS mechanism streamlines the payment process and reduces the paperwork
As transactions are automated, the margin of error becomes tapered
The automation of payments increases the efficiency of all the parties involved
It helps individuals avoid late penalties as payments are automatically scheduled
It is convenient and saves time, as it doesn’t require you to make repeated payments manually
ECS Charges
Charges for electronic clearing systems in banking may vary depending on the type of transaction and the bank’s policies. Here are some of the charges associated with the ECS payment method:
ECS Verification: Most leading banks don’t charge any fee for ECS verification
ECS Return Charges: Banks levy this fee in case of an ECS bounce due to insufficient funds
Difference Between ECS and NACH
Check the following table to know what distinguishes the Electronic Clearing System from the National Automated Clearing House.
Basis
ECS
NACH
Operational Model
A regional clearing system managed by the RBI and is applicable within the circle where implemented
A centralised system managed by NPCI and applicable to all banks and financial institutions
Mandate Verification
It doesn’t generate any unique transaction reference number
This system generates a unique reference number for each transaction
Transaction Timings
These payments are processed on a certain date as per the predefined cycle of payment
It operates on a scheduled basis and transactions are processed in batches during specific time slots
Settlement Time
3-4 working days
A maximum of 24 hours
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FAQs on Electronic Clearing Service (ECS) in Banking
What is the ECS process in banking?
Here is how the electronic clearing service works:
Collect ECS mandate from the bank by providing essential details, like account number, account holder’s name, branch name, etc.
The bank will verify these details and send them to the NPCI for scrutiny
The bank will debit the specified amount from one bank account to another after the scrutiny
How long does ECS clearing take?
The processing of transactions takes 3-4 working days through ECS in baking.
What happens if ECS is returned?
If a transaction through an electronic clearing service fails due to lack of sufficient funds, here is what will happen:
The bank will levy a penalty in the form of ECS/NACH return charges
This penalty can even range up to ₹500 with GST charges for some of the leading banks
