ECS Full Form

ECS stands for Electronic Clearing System in the field of banking. ECS is a type of electronically aided fund transfer method. A series of events that result in money moving from the sender to the recipient is called a fund transfer. It can also be stated as the transfer of funds from one party to another through the financial system. These fund transfers can be classified into various types as NEFT, IMPS, cheques and more. It can be performed in both online and offline mode. Depending on the sender and the receiver, fund transfer can be categorised into the following types. They are Customer Transfer, Bank Transfer, Bank Transfer for Own Account.

What is an ECS?

An Electronic Clearing System is a mode of electronically supported fund transfer. It is also called an Electronic Clearing Service. Banks provide the Electronic Clearing System as a need of the hour facility to automate monthly transactions. It allows funds to be sent automatically from one bank account to another on a set date. ECS plays a major role in the payment and collection of amounts. It is used in the transfer of huge amounts of money and it is commonly used by institutions, companies, governments offices, schools, hospitals, etc.

Uses

• To credit Salary
• To give pension
• To distribute dividends
• Interest settlement
• Pay electricity bills
• Settle water dues
• Remit Loan repayments
• Mutual fund investments
• To Insurance premium
• Aids in tax collections

Money can be automatically transferred to the account of the person linked as a receiver on a fixed date each month.

Types of ECS

ECS can be categorised into two variants based on the mode of transfer. They are:

1. ECS credit
2. ECS debit

ECS Credit

As the name suggests, an ECS credit is the transferring or adding money to the account of the receiver or the beneficiary. Money from the holder is transferred to the target receiver on the specified date each month. Here the receiver may be employees, shareholders, investors, etc. Bill payments, interest payments, Dividend distribution, salary transfer, can be done through this.

Advantages of ECS Credit

• No frequent bank visits are required.
• Delay in the transaction can be avoided.
• The ECS user contributes to the reduction of administrative machinery costs associated with printing, dispatch, and reconciliation.
• Cost-effective
• Absence of loss, threat and fraudulence. 
• Allows you to make a payment and have it credited to the beneficiary’s account on a specific date.
• Less stress for the payer and the receiver.
• Easy to handle

Working of ECS Credit

• The user must present the details of the beneficiaries to the bank. The details include the name of the beneficiaries, bank and branch of the beneficiaries, account number of the beneficiary, MICR code of the destination bank branch.
• The date on which the money must be credited should be provided.
• Then the bank debits the money from the user account and transfers it to the specified beneficiary account on the listed dates.

ECS Debit

ECS debit refers to collecting money from accounts. It deals with receiving money from different bank accounts linked to various locations. The account holders from where the money flows may be investors, taxpayers, borrowers, service holders, etc. It is commonly used in tax collections, bill payments, insurance premiums, loan payments. It is applied in a place where a huge number of customers transfer money to a single account.

Advantages of ECS Debit

• No issues in payment
• Automated method
• No wastage of time and energy
• Follow up is quick and simple
• No fraudulent
• Efficient cash flow management

Working of ECS Debit

• The user must present the details of the customers to the bank. The details include the name of the customers, bank and branch of the customers, account number of the customers, MICR code of the destination bank branch.
• The date on which the money will be debited should be provided.
• The bank retrieves the money from the customers’ accounts and credits it to the target account.
• The electronic instructions will be received from the ECS Centre and the client accounts maintained with them will be debited appropriately.
• Within the specified time, ECS centres return the unsuccessful debits to the sponsor bank.

ECS Schemes

ECS schemes are available in many places and locations around the World. Based on the geographical situation of the location, It is assorted into three types. They are:

• Local ECS: The country has 81 centres operating as local Electronic Clearing Service. The branch coverage at each of these ECS centres is limited to the clearing house’s geographical coverage, which more commonly includes a city, suburbs adjacent to the city and satellite towns.
• Regional ECS: The country has 9 centres operating as regional Electronic Clearing Service. The system makes use of a bank’s main banking system. It allows institutions desiring to reach beneficiaries within a State or set of States to cover all core-banking-enabled branches in that State or group of States. 
• National ECS: The country has a single centre operating as a national Electronic Clearing Service. The ECS credit scheme has its centralised version launched in 2008 and is located in Mumbai. It deals with and controls all the other ECS units across the country.

Conclusion

Electronic Clearing System is a convenient tool for users to transfer money from one account to another automatically without the involvement of time, energy, risk and external charges. It acts as a smart tool to overcome the drawbacks present in the conventional methods of fund transfer.