The country currently accepts two types of payments electronically. One is EFT(Electronic Fund Transfer) and the other one is ECS(Electronic Clearing Service). These operate under the rules and regulations offered by the RBI.
EFT vs ECS
The main difference between EFT and ECS is that EFT is used to transfer remunerations which may or may not be regular, from one branch to another while ECS is a credit clearing system that is used to transfer a bulk amount regularly.
EFT is used to transfer the funds from one bank branch to another. Outstation cheques, bills, and other money transfer operations that occur distantly uses this mechanism. EFT is present in all the four metropolitan cities and is extending to more cities. An office automation package is done to extend this feature.
ECS is used for the payments which are done on a fixed basis in an institution. This scheme works for the payments like fee transfer, salary transfer. ECS is presently functioning in 16 centers all over India and is in a process of extension. This process happens in three phases.
Comparison Table Between EFT and ECS (in Tabular Form)
| Parameter of Comparison | EFT | ECS |
|---|---|---|
| Transaction details | EFT is used to transfer huge amounts and the transaction is secure. | ECS can transfer debit and credit operations which may or may not be a huge sum. |
| Frequency | Since EFT transactions occur for larger amounts, the frequency of transactions is minimum. | ECS transactions are generally frequent. They may happen regularly. |
| Remoteness | EFT is used for distant transactions which may be inter-state and inter-district. | ECS occur for nearby transactions. |
| Transaction delay | The transaction occurs in batches. | The transaction takes a few days to get completed. |
| Transaction Charges | EFT charges can differ from the amount that is being transacted. The charges vary accordingly. | There is no transaction charge associated with ECS and customers can avail this feature free of cost. |
What is EFT?
Electronic Fund Transfer(EFT) is a banking scheme through which distant transactions occur. This scheme has reduced paper usage and the time delay to transact huge remunerations from one place to another. EFT can also be used in both credit and debit transfers.
Automated Clearing House(ACH) network is the batch processing system that operates here. The institutions which use EFT generate all transactions to ACH and then the ACH handles them using branches. There are many EFTs available. Some of them are- Direct deposits, Wire transfers, ATMs, Debit Cards, Pay by Phone systems, and Online Banking schemes.
There is some information that is required from the receiver to accomplish an EFT transfer. The most important one is the bank that is receiving the funds on his/her behalf. Also the bank account that receives funds is mandatory for the transfer. The bank’s ABA routing number and the type of account a person holds is to be known before an EFT transaction begins.
The Electronic Funds Transfer Act is passed by the U.S Government to protect the customers using EFT. Consumers can report the court if any of their rights are denied while using any form of EFTs. Also no one can force anyone to use this system for transferring cash, an alternative has to be provided if they deny.
What is ECS?
The Electronic Clearance Service(ECS) provides a banking scheme where customers can transfer cash periodically. ECS clears the usage of paper transactions that occur regularly and also reduces the time between transactions. ECS is found in two forms- ECS credit and ECS debit.
ECS Credit is operational in a situation where an institution is required to pay multiple users. For example if your salary is to be credited, your company’s bank account has to be debited. When many other users similar to you are been credited from the same account, the institution’s bank account is debited multiple times. So this account is debited many times to credit many other accounts.
ECS debit is also a similar process but the difference is that when you are the person who needs to credit many more similar accounts. You may have to transfer cash for many reasons such as EMI, Gold loan, and many more similar stuff. So your account is being debited multiple times for crediting some other accounts.
People who earn and have fixed incomes can apply for ECS by providing a mandate which contains your bank details. After this, the bank can authorize the institutions which can credit and debit your bank account.
Main Differences Between EFT and ECS
- EFT mechanism is functional when transactions occur once in a while and need not be repeated often. Paying an entrance exam fee is an example of EFT. ECS is used for the payments that occur periodically such as salary credits and fee payments.
- EFTs are used for transfers where both of them are far apart and may not have any communication whereas ECS generally occurs for the transfers that have the sender and receiver nearby.
- EFTs charge a certain amount from the sender to ensure the security of the transaction. This charge varies according to the money transacted while ECS does not claim any transaction charges to complete the process.
- To enable EFTs for a particular bank, the infrastructure they have and the facilities to implement this system are to be verified. ECS has quick transfers from one bank to another.
- EFTs are operational for high-value transactions while ECS is operational for low-value transactions.
Conclusion
Both EFT and ECS are banking schemes that are used to transfer cash from one bank to another. They can be used in credit and debit mode. Their process happens in batches. EFT has wider coverage while ECS is more common which may be used on a day to day basis.
Only EFT and ECS approved banks can offer this scheme to their customers. Both of them have made transactions simple and effective. Now transactions have become paperless and there is no time delay between transactions.
References
- http://www.ijrbs.com/wp-content/uploads/2019/06/Ms.%20Neetu%20Khandelwal.pdf
- http://www.indianjournals.com/ijor.aspx?target=ijor:ajmr&volume=4&issue=3&article=021