We live in a world of technological innovation. From how we interact with our friends to how we find a doctor, from how we do our shopping to how we learn, it has pervaded all aspects of our lives.
So it should be no surprise that the Banking industry has not been far behind. The Reserve Bank of India has been quite pro-active in encouraging Banks to carry out technological innovations. Indian banks, especially Private Banks, have been early adopters of this as well. In fact, India has a well-developed payment infrastructure compared to many other countries, including developed countries.
The most common use of our bank accounts is for making and receiving payments. The faster, the better! Let us look today at some of the money-transfer methods offered and try and evaluate which is best suited for your needs.
1. National Electronic Fund Transfer (NEFT) is one of the most popular payment methods (after traditional cheque-based payments).
- It is a push-based mechanism where one account holder can push funds from his account into another account held with a different Bank.
- NEFT operates in hourly clearing cycles from 8 AM to 7 PM on weekdays and 8 AM to 1 PM on Saturdays.
- There is no amount restriction from RBI’s end, but individual Banks may impose limits. However if the NEFT is being made by a person handing over cash to a Bank and not from an account, the maximum amount per transaction is INR 50,000/-
- Not all branches of all Banks are NEFT-enabled, so you do need to check whether your sending and receiving accounts are held with eligible branches. The list of such branches is available on RBI’s website.
2. Real-time Gross Settlement (RTGS) is the most commonly used payment method for high-value business payments.
- As the name indicates, RTGS transactions happen real-time, or instantly, and not in the batch processing as is the case with NEFT. Further, each transaction is settled individually by the Banks. This is why it is favoured by corporates for their transactions.
- Like NEFT, it is a push-based system, in the sense that the person giving the money has to give instructions to transfer the funds.
- Transactions can be placed between 9 AM and 4:30 PM on weekdays and between 9 AM and 2 PM on Saturday.
- After funds are debited from senders account, the transfer of funds to receivers account is almost instant, and credit should happen within 30 minutes.
- RTGS has a minimum transaction amount of Rs 2 lakhs and no maximum limit.
- Other aspects are mostly the same as NEFT.
3. Interbank Mobile Payment Services (IMPS) is the most recently-introduced fund transfer method.
- In order to use IMPS, the account holder at both ends needs to have his or her mobile number registered with the Bank.
- Mode of registration and enabling of an account for IMPS can vary from bank to bank.
- Unlike RTGS and NEFT, IMPS transfers are instant and can be done at any time including after banking hours and on Sundays and Bank Holidays.
- There is a maximum limit of Rs 2 lakhs per transaction.
- The number of Banks and branches enabled for IMPS is relatively less, so check with your Bank branch to see if your account is enabled for this service.
4. Electronic Clearing Service (ECS) is another widely-used fund transfer method.
- Unlike the previous three, ECS is a ‘pull’ based fund transfer.
- In the ECS mechanism, the account holder authorises his Bank branch to permit an account holder with another Bank to debit his or her account and effect the payment.
- The value and frequency of the amount thus debited depends entirely upon the authorisation given by the account-holder. A form has to be submitted to this effect to the Branch.
- This method of transfer is most popular for collecting EMI’s for Home Loans, setting up SIP’s and similar transactions. It can also be used for receiving a credit into an account, typically salary or similar recurring payments.
- ECS is a batch-based processing system, and the timing has to be defined well in advance. Typically the ‘clearing cycle’ is upto 3 days for a transaction.
5. Electronic Wallets are another payment method that has been gaining traction of late. While some Banks offered similar services for a while now, with the advent of smartphones and mobile banking, it has become more popular.
- Services include the likes of PayTm, Freecharge and MobiKwik, among others. While each has its own rules and restrictions, by and large the methodology is that the user funds the wallet from his or her bank accounts and then provides the mobile wallet or Bank account number of the recipient. Transfers are usually instant, and there are no charges for transfers within the same wallet system.
- This payment method is still in an early stage of evolution and it will be interesting to see how it develops
6. Payment gateways are online services allowing a service provider (typically a Company or Government authority) to receive funds through Internet Banking, Credit Cards or any of the other payment methods mentioned above.
- Payment gateways provide a robust authorisation module and pull the funds from payers account into that of the payee for a small transaction charge.
- The main advantage of using a payment gateway is that it is very convenient for both the person paying for the service and the person receiving the funds. Rather than make a payment by cash or cheque, involving physical movement, or using NEFT or similar mode where there is a chance of an error, using a payment gateway assures credit of funds to the correct account.
7. Traditional payment modes
All the modes mentioned above have their advantages, but the traditional mode of payment using a cheque or demand draft is still around and unlikely to go away anytime soon. And indeed, in certain cases, it may still be the best option.
Many government offices insist on payment being made through a DD, and even some businesses prefer to receive a physical instrument. Similarly, for certain personal payments as well, especially loans, it is a good idea to take a cheque and keep a copy on file as a paper record.
In an ever-changing world of Banking technology, there seem to be almost as many ways to make a payment as there are types of coffee at Starbucks! The good news is that every account holder can easily use any of these methods at any time depending on the purpose of payment. Understanding how the payment method you are using works and what it is best for is the key!