What is Electronic Clearing Service (ECS)?

We make various payments like Loan EMIs, utility bills, mutual fund SIPs, and Credit Card bills on a repetitive and periodic basis. But the responsibilities of our busy professional and personal lives make it challenging for most of us to remember the due dates for such regular payments. 

Late payments result in steep penalties and could impact your credit rating with products like Loans and Credit Cards. But you can eliminate this problem through Electronic Clearing Service (ECS). Let's take a look at what is ECS, how it works, its benefits, and more - 

What is ECS?

Electronic Clearing Service, or ECS, is an online transfer facility launched by the Reserve Bank of India (RBI). It facilitates bulk fund transfers between bank accounts. The ECS transactions are processed through a clearing house. For instance, the National Automated Clearing House (NACH) handles most of the ECS debit transfers in India. 

What are the Types of ECS Transactions?

ECS in the banking system is of two types- credit and debit. Check out what they mean-

1. ECS Credit

ECS credit is when a single bank account is debited to credit payments to multiple bank accounts. For instance, an institution can use the ECS credit facility for dividend payments, salaries, etc. 

2. ECS Debit

With ECS debit, a single bank account can be used for making various repetitive payments, such as Loan EMIs, mutual fund SIPs, insurance premiums, etc. 

How Does ECS Work?

Institutions like lenders register themselves with clearing houses to offer their customers the Electronic Clearing Service (ECS). 

Today, when someone takes a loan, they are mostly required to sign an ECS mandate. With this mandate, the clearing house can start debiting the EMI amount from their bank account on a fixed date and credit it into the lender’s bank account. The mandate includes all the details, such as your bank account, EMI amount, date of payment, etc. 

What are the Benefits of the ECS Credit & Debit System?

ECS benefits institutions and customers in many different ways like-

• Eliminates the need for offline payments
• Saves time
• Ensures on-time payments
• No late payment charges
• Improves customer satisfaction

What is the Service Fee for ECS?

According to the directives by the RBI, the beneficiary or sponsor bank cannot levy any ECS mandate charges on the customers. However, banks might charge a fee for ECS sign verification. 

Also, banks generally charge a penalty if an ECS debit request bounces due to the unavailability of funds in the account. So, if you opt for the ECS debit facility, ensure your account has sufficient funds.

How to Avail ECS Facility?

If you’d like to avail ECS in banking, you’ll have to submit an ECS mandate to your bank to authorise the institution to credit or debit funds on a fixed date. 

Just like other fund transfers, you’ll receive notifications of your ECS credit/debit transactions on your registered email address and mobile number. 

How to Stop ECS?

If you’d like to stop ECS payments for some reason, you’ll first have to inform the bank that is crediting/debiting payments to and from your account by submitting a written application. 

Once the request is submitted to the institution, you must fill and submit the ECS mandate cancellation form to your bank. 

Things to Consider When Using ECS

Here are a few things you should always remember before opting for ECS-

• Cross-check the ECS mandate before submission
• Carefully check the first credit/debit transaction processed through ECS to ensure everything is in order
• Always have sufficient funds in your account to avoid bounced ECS and its penalty

Key Takeaways:

• AU Small Finance Bank, the Largest Small Finance Bank in India, has built a secure and user-friendly Online Banking ecosystem to offer enhanced convenience to customers
• When you want to manage interbank, high-volume and electronic payments, you can opt for National Automated Clearing House (NACH) collection services from AU Small Finance Bank
• You can benefit from our customized MIS facility for easy reconciliation and access to mandate registration anytime