When it comes to transferring funds, currently, there are plenty of methods available. A transaction could be made in a jiffy with the help of a gadget with a good internet connection. There are several available options to complete a transaction through internet banking such as NEFT, RTGS, IMPS, and many more. However, these transactions are carried out on web-based solutions that are used by banks. These web-based solutions facilitate transfers across banks and within the same bank. There are two main modes of electronic transfer that are carried out by banks: NACH and ECS.
On this page: ECS Types | NACH Types | ECS vs NACH | Comparison | FAQs
Electronic Clearing Service (ECS) was launched by the RBI. The main reason behind launching ECS was to facilitate the bulk transfer of funds across bank accounts. In simple terms, ECS is an electronic mode of money transfer that is used for making a variety of payments such as clearing pension, distributing dividends, paying salary, distributing interest, etc. With ECS, the transfer of funds from one bank account to another bank account was made hassle-free.
Many loan providers use the ECS mandate as an important part of their practice. They use ECS to debit the monthly EMIs for loans from the bank account of the borrower. In India, National Automated Clearing House (NACH) handles all of the ECS debit processes. NACH typically works under the National Payments Corporation of India (NPCI). Besides, there are 2 main types of ECS: debit and credit.
ECS credit is largely used to distribute funds. Typically, several big institutions made use of this facility to send credit to many of their recipients. All of the recipients will hold an active account in the same bank irrespective of the branch. Moreover, all these transactions are raised as a single debit that is made to the user institution’s bank account. For example, a company paying salary to all of its employees can describe an ECS credit activity.
When it comes to ECS debit, it is used to collect funds from several bank accounts. It works similar to ECS credit, instead, the user institution collects funds from a number of bank accounts. For instance, investors in mutual funds or SIPs, individuals who have availed of a loan, and consumers of utility services make regular monthly payments to the same user institution account. This can also be used for the purpose of paying bills, making investments in mutual fund schemes, making EMI payments for loans, etc.
National Automated Clearing House (NACH) was introduced by the RBI to primarily facilitate the transfer of bulk payments by businesses, government units, corporate sector, and more. Such sectors regularly have plenty of bulky transactions that typically are for salary payments, subsidies, pension payments, and many more. So, NACH was introduced to handle such bulky payments with ease. In addition to large payments, other types of transactions such as EMIs, bills, etc. can also be made through NACH.
One of the major concerns for large payments is that overseas transactions of such payments are not easily facilitated. The process of bulky overseas transfers comes with a certain amount of hassle. However, with NACH, geographical boundaries are lifted. There are 2 main types of NACH mandates: credit and debit.
NACH credit is very similar to that of ECS when it comes to the functionality. Nearly 10 million transactions can be engaged without any hassle during a span of 1 day.
NACH debit is along the lines of ECS debit. It allows a large number of incoming transactions or deposits to a single account. Several financial institutions can accept payments in bulk from any third party.
While both ECS and NACH may seem to be similar on many levels, there is a difference between ECS and NACH. Here are 5 of the main differences between the NACH and ECS mandate.
The operating model of ECS vs NACH are entirely different. While both NACH and ECS have credit and debit methods, the operating model of NACH is more advanced when compared to ECS. The ECS platform typically uses a manual process to carry out the entire process. Due to this manual process, there arise many challenges like inconsistencies in timelines when it comes to servicing and post-transactional management of queries. NACH, on the other hand, has an advanced system to consolidate multiple ECS systems while also removing geographical barriers.
Dispute Management is a prime ECS and NACH difference. When NACH vs ECS, the dispute management system of NACH has a lead as NACH has an online dispute management system that is available. Whereas, ECS does not have any dispute management systems.
NACH takes about 24 hours for settlement, whereas ECS takes only about 3 to 4 days for settlement.
The rejection rate of ECS is much higher when compared to the rejection rate of NACH as it is close to negligible.
A key difference between NACH and ECS is that NACH requires less to no paperwork, but ECS requires plenty of paperwork.
The NACH and ECS difference stands out especially when it comes to dispute management and the time taken for settlement. In addition, the amount of paperwork and rejection rate also differentiate NACH from ECS. To summarize, let us have a brief look into the difference between ECS and NACH.
National Automated Clearing House (NACH) |
Electronic Clearing System (ECS) |
Exceptional operating model |
Poor operating model |
Has an online dispute management system |
Does not have a dispute management system |
24 hours for settlement |
3-4 days for settlement |
Negligible rejection rate |
High rejection rate |
Less paperwork |
More paperwork |
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NACH is a payment system that is operated on the lines of ECS.
To cancel a mandate, you can approach the user institution and withdraw the NACH ECS mandate. You can also withdraw the mandate directly from the bank without having to approach the user institution
ECS and NACH have many differences. Primarily, NACH is used to facilitate inter-bank bulk transfers and has a lower number of rejects. ECS has a higher number of rejects usually stemming from mandate-related issues.
When compared to ECS, NACH has less paperwork involved.
The settlement period for NACH is 24 hours whereas the settlement period for ECS is 3-4 days.