Electronic Clearing Service (ECS) is a method of electronically transferring funds between bank accounts. ECS in banking is generally used by large organisations for repetitive bulk transactions, such as bank transfer of salaries, dividends, interest payments, loan repayments, and pensions to name a few.
Typically, the ECS transactions take place between a single user account (payer) and a large number of destination accounts (payees). However, the Electronic Clearing System can also be used to settle utility bills and other regular payments, such as equated monthly installments (EMIs) for loans and systematic investment plans (SIPs).
Electronic Clearing Service is classified into two types – ECS credit and ECS debit:
When a bank makes a credit to another bank account, say to pay a salary or dividends, it is known as ECS credit. In this case, a single bank account is debited and the money is credited to multiple other accounts.
ECS Credit is typically used by institutions or organisations that have to make repetitive bank transfers to a large number of beneficiaries. However, note that an ECS subscriber must first register themselves with an approved clearing house, such as the National Automated Clearing House (NACH) and obtain approval or consent of the beneficiaries, who will receive payments through an ECS mandate. To register with a clearing house, the ECS user must first provide it with the account particulars of the beneficiaries. Usually a due date is fixed on which the clearing house debits the ECS subscriber’s bank account and transfers the amount to the various beneficiary accounts.
ECS Debit is typically used by utility service providers, among others, to collect payments from a large number of customers, generally on a recurring basis. Once an ECS Debit mandate is set up, the payee can receive payments on a fixed date automatically. It is also convenient for the payers, which in this case, are mostly customers because they don’t have to manually make payments.
However, in order to use this facility, a user must provide their consent and authorise the payee to debit their accounts on a specified date on a periodic basis. Once the ECS mandate or authorisation is provided, the payee can use the ECS system to transfer money from the customer’s account to their own bank accounts.
The ECS user (typically a business or merchant) must obtain a formal consent and bank account particulars of their customers, which is known as an ECS mandate. Once the mandate is received, the ECS user submits a formal request for transfer of funds from the payer’s bank account through a clearing house. The ECS user i.e. the merchant must submit the customer’s bank account details, formal consent, amount to be debited, and other relevant details. The bank then processes the request and debits the money from the payer’s bank account. The money is then credited to the ECS user’s bank account through the clearing system and both the parties are notified about the transaction.
When an ECS mandate is issued by a payer, which could be a customer, the mandate i.e. their consent, along with their account details, are passed on to a clearing house. The clearing house is expected to debit the said amount on a specified date from the payer’s bank account and credit it to the beneficiary account. The transfer of funds happens electronically in bulk.
ECS can be broadly categorised into three types based on location:
The RBI operates 81 local ECS centres throughout India
The RBI operates regional ECS at 9 locations across the country
It is a central unit located in Mumbai, India
The Reserve Bank of India (RBI) has regulated that a sponsor bank must pay the transaction fees. The destination banks are mandated to provide free Electronic Clearing Service facility to the beneficiary accounts. Therefore, one will not be charged any additional fees as a recipient.
If you want to stop Electronic Clearing Service (ECS) payments, you must first notify the financial institution. Based on the format prescribed by the merchant or their bank, you will have to submit a written application, along with supporting documents, if required. You must inform your own bank about your decision as well so that your account is no longer debited through ECS.
To set up an ECS mandate, contact your bank and complete the following steps:
|Verification of a mandate
|NACH generates a unique reference number for each transaction
|ECS has no provision in place to generate a unique transaction reference number
|NACH usually takes up to 1 day
|ECS could take between 3 to 4 days
|Resolution of disputes
|NACH has a dispute resolution mechanism
|ECS has no such system in place
|More modern, faster, and more accurate
|Fully manual, which creates a challenge for accurately tracking and solving post-transactional queries
|Rate of rejection
|Typically quite high
Electronic Clearing Service (ECS) allows automatic and direct transfer of funds from one account to multiple other accounts – an extremely convenient and efficient way to collect recurring payments in bulk.
ECS can be used for any type of bulk payment, such as interest, pension, dividend, salary, or recurring monthly bills. In addition, by using Electronic Clearing Service, an user can set up auto-pay for insurance premiums, loan repayments, or mutual fund SIPs.
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Yes. If any of the information in the mandate changes, the beneficiary must notify the User Institution so that the correct information can be incorporated into its documentation.
No, there is no restriction on the number of transactions made.
When one records a transaction they intend to pay electronically, it is posted to a temporary holding account. For example, a clearing account or a suspense account is a holding account. This account holds the payment until they are ready to build a billing file to upload to their bank for processing.
The Reserve Bank of India’s (RBI) Electronic Clearing Service facility is a well-established, secure, and hassle-free system for receiving and paying the above sums. Through the RBI, this system connects your bankers to the bankers of your service providers or corporations where you have invested your money.
Let’s say that a company has 200 employees. The company credits salary on the first day of every month. By setting up an ECS mandate, the company can transfer salary to employee bank accounts in bulk, instead of crediting each account individually.
The following documents may be required to set up an ECS mandate:
-An identity proof, such as Aadhaar, Passport, Voter ID card, etc.
-A signed copy of the ECS mandate form
-Payment information, such as bank account, etc
-The bank account, address, IFSC Code, MICR Code, and other details about the beneficiary
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