What Is the Difference Between NACH and ECS

Ever wondered how the bill payment you made by an app reached the service provider or how all the employees in a company get the salary on the same date and time every month? Well, if not, then say thanks to multiple payment and settlement systems in India.

Governed by the Payment and Settlement Systems Act, 2007 (PSS Act) and regulated by the Reserve Bank of India, both gross and net settlement are taken care of. While Real Time Gross Settlement (RTGS) is meant for gross payment through the online system at an instance, for the one-to-one net payment system for services and products, there is the more commonly used National Electronic Fund Transfer (NEFT) available. Along with the popularity of digital wallets, the good old debit card and credit cards are also part of the payment system and are counted as plastic money.

But to understand how it all works, one needs to be introduced to Electronic Clearing Service (ECS) and National Automated Clearing House (NACH) that is gradually replacing the ECS.

What is NACH?

NACH: Started by the National Payments Corporation of India (⦁NPCI), National Automated Clearing House (NACH) aims to be a better centralized, web-based clearing service. It is gradually replacing the existing ECS by consolidating all regional ECS systems into one national payment system.

NACH Credit: NACH credit has the same functions as the ECS credit and gives the option of engaging 10 million transactions in a single day and checking the status of the payment.

NACH Debit: This system, like ECS debit, lets financial institutions accept payments in large volume without the intrusion of any third party. The Unique Mandate Reference Number helps the customer to track multiple payments.

What is NACH in Banking, and How Does it Work?

NACH full form in Hindi is राष्ट्रीय स्वचालित समाशोधन गृह, translating to National Automated Clearing House. Before knowing what NACH credit is, you must know NACH is a secure online platform that many companies, banks, government bodies, and financial institutions use to make high-volume, inter-banking financial transactions. It is particularly helpful in clearing bulky payments to be repeated at regular intervals, such as paying employee salaries, dividends to customers, etc.

In India, NACH is responsible for handling all ECS debit transactions. NPCI (National Payment Corporation of India) launched this centralised digital payment system to make bulk payments simpler and faster. Here is how it works:

• The money collecting agency collects NACH RBI update from customers, which gives them the authority to debit a certain amount from their bank accounts automatically at certain intervals.
• The agency verifies the provided details and forwards them to the NPCI.
• The agency’s bank shares the NACH ECS mandate instructions with the NPCI.
• After validating the information, the NPCI seeks approval from the customer’s bank.
• If the bank validates the transaction and ensures sufficient balance, the NPCI requests the customer’s bank for debit.
• The agency can now collect the due amount from the customer’s bank account and deposit it to the recipient upon payment of certain ECS mandate charges. However, if the payment fails, ECS ACH return chg will apply.

Benefits of NACH

Now that you know the ECS NACH meaning, understand that this payment system benefits customers, banks, and organisations equally. Debit and credit by NACH means safe and secure payments for customers only after validating their online banking credentials. You no longer need to remember recurring payments at regular intervals, as funds are automatically debited from your bank account. Don't worry; the facility has easy access and prompt cancellation features to keep your money safe.

For banks, NACH minimises the possibility of payment delays and reduces the chances of fraud and theft. If you know the NACH ECS full form, you will realise how cost-effective, efficient, and fast this payment system is, helping banks improve their customer relationships. Organisations also ensure easy bill settlements, higher customer satisfaction, time-saving, and timely payments from customers. Moreover, the ECS mandate means they don't need to handle huge volumes of cheques each month.

What is ECS?

ECS: It is an electronic mode of payment for making payments such as the distribution of dividend or interest, paying salary, clearing pension, etc. Similarly, it is used for accumulation of funds by collecting bills like how service providers get money via paid telephone or electricity or water bills. ECS facilitates the transfer of these amounts from one bank account to many bank accounts or vice versa.

ECS Credit: It is used for the distribution of funds. It is usually used by big institutions to send credit to a large number of recipients, for example, employees or investors of a company. All the recipients have accounts with the bank but at different locations but thanks to ECS, they all are paid by raising a single debit to the bank account of the user institution.

ECS Debit: Just like ECS credit, ECS debits works the same way but it helps the same institution in the collection of funds from a large number of accounts. Consumers of utility services or investors in mutual funds or borrowers, who have accounts in different bank branches, make payments to the same account of the institution, at regular intervals. Bills, taxes, loan installment repayments, periodic investments in mutual funds, insurance premium etc. fall under this category of payment but are counted as a single settlement from the institution’s perspective.

What is ECS in Banking, and How Does it Work?

The ECS full form in finance is Electronic Clearing Service. Compared to NACH ECS, ECS is a manual procedure that takes time and is less reliable than NACH for financial transactions. To understand ECS meaning in banking, you must know that it is an online method of manually transferring funds between bank accounts. However, you can also activate the ECS mandate to automate the ECS mode of payment.

Want to know how many types of ECS there are? Well, they are of two kinds, ECS debit and ECS credit. Debit transactions include payments coming to your account, and credit transactions include payments from your account to others. Understanding the difference between NACH and ECS is essential to know how they work and which one suits your requirements.

Benefits of ECS

The ECS system frees banks from handling paperwork and reduces their workload. The customers also benefit from immediate credit of interest and dividends on their securities. You don't need to issue paper checks to make payments because the system supports 100% digital debit and credit. In the case of ECS return, they must pay return charges. ECS ACH return chg meaning is the charge you pay for failed payments.

Difference between NACH and ECS

1. Reach:

While at present, ECS is available at limited centers in the country - operated by RBI and commercial banks, the NACH platform will be available across a wider bank network in India.

2. Operating model:

While ECS platform uses manual processes and is struggling with challenges like inconsistent timelines around post transactional query management and servicing, the new-age NACH platform is designed to consolidate the current multiple ECS systems by removing any geographical barriers.

3. Presentation and settlement period:

NACH aims to reduce the activation time of mandates to 10 days from the usual 30 day process of activation of ECS mandates. Also, while ECS takes up to 3-4 days for the presentation and settlement process, NACH does it within 24 hours.

4. Dispute management:

NACH has an online dispute management system to resolve issues that ECS never had.

5. Process of mandate verification:

ECS does not have any Unique Mandate Registration Reference Number but NACH has, which can be used for future transactions.

As we are heading towards being a cashless society, the payment system in India is getting rapidly sophisticated. Attempts are being made to weed out the few drawbacks of the existing system and replace it with a robust one. As a result, we saw the introduction of NACH that is designed to act as an upgraded version of the ECS and make life easier for everyone, from individuals to institutions, who is in the business of making bulk payments and settlements every month.

FAQ

What is ECS NACH?

ECS NACH full form is Electronic Clearing Service (ECS)/ National Automated Clearing House (NACH). It is a digital payment system that allows digital financial transfers between bank accounts.

Is auto debit and ECS the same?

No, we have already told you what ECS is. It is a digital method of sending payments to bank accounts. For auto debit, you must register with the ECS mandate. Automatic ECS credit meaning the amount will be automatically deducted from your bank account and transferred to the recipient on a specific date. Automatic ECS debit means your bank account will receive a recurring payment automatically from the sender’s bank account. To understand it better, you must understand what an electronic clearing system is.