Electronic mechanism to replace checks


Cashing in on the advancements in information technology, banks have added yet another feather in their cap – the speedy, electronic mechanism to transfer money to and from client’s bank account. There are various ways in which an online funds transfer can take place.

Remitting or receiving amounts may not involve filling up a check or a Demand Draft. Welcome to the world of paperless money transfers, payments and receipts. A concept which has revolutionized the manner in which banking transactions are conducted today and this is called “e-money transfer� which is here to stay! Anyone can transfer funds into other accounts or receive funds from their accounts across the globe with the click of a mouse. For example an investor now receives his IPO refunds through a direct credit into his bank account and another bank customer pays her mobile and electricity bills without stepping out of the comforts of her home. All of them swear by the convenience offered by this very sophisticated ‘electronic money transfer and payments’ tool.

Electronic Funds Transfers (EFT)

EFT is a method of transferring money from one bank account to another without the use of paper money and instruments like checks and demand drafts. An EFT transaction is initiated through an electronic terminal such as an ATM, a debit/credit card or the internet. You can make use of EFT for both, credit transfers, for instance, dividend received from shares into your bank account, as well as debit transfers, such as making an EMI payment on your loan.

The entire gamut of card transactions, electronic payments made such as utility bill payments etc. and electronic checks clearing are covered under the scope of such transfers.
The RBI Indian government’s Central Bank) over a period of time has developed different modes to facilitate banks to transfer funds electronically from one account to another account of the same bank or of another bank within the city or across India. Following are the mechanisms devised by the RBI under which one can give electronic instructions to transfer funds.

RBI-Electronic Funds Transfer (EFT) scheme

This is a system whereby the account holder can authorize his bank to transfer funds directly from his account to the beneficiary’s bank account. This could be within a single bank or to an account in another bank. However, this facility is restricted only to the 15 RBI defined cities.
Funds transfers can be made from any branch of a bank at thesecenters to any other branch of any bank at these cities, both inter-city and intra-city.

RBI is the intermediary between the remitting bank and the receiving bank and affects the transfer of funds. Under the RBI-EFT scheme, funds are credited into the receiver’s account either on the same day or within a maximum period of 4 days, depending upon the time at which the EFT instructions are given and the city in which the beneficiary account is located.

National Electronic Funds Transfer (NEFT)

An improvement over the RBI-EFT platform, the NEFT has no geographical restrictions and only requires the issuing bank and the receiving bank to be a part of the NEFT system in order to affect the funds transfer. This is a faster, more secure and economical system as compared to EFT since the money transfer is electronic from end to end. Also, under NEFT, the transfer takes place either on the same day or on the next day, depending on the time of instructions given. Gradually, the RBI plans to migrate completely to the NEFT system and discontinue with the EFT scheme.

Electronic Clearing Service (ECS)

ECS is primarily used for receipts and payments which are of a small value and which are generally repetitive in nature. ECS can be divided into two types: ECS Debit, which involves a transfer of funds from customer’s account and ECS Credit which takes place when money comes into customer’s account. The Account holder

can choose to receive an ECS Credit for transactions such as periodic interest, dividend received on investments, monthly salary credit, refunds from an IPO subscription, etc. Similarly, an ECS Debit involves making utility bill payments directly from customer’s bank account, EMI payments on loans, undertaking investments, etc.

’Funds transfer’ instructions
For each of these options of funds transfer (except ECS), the account holder need to give instructions to his bank including the beneficiary account details, such as the receiver’s name, bank branch and account number and type. He can raise a ‘funds transfer’ request either at the bank branch, using the net banking services of his bank or through the ATM. However, internet banking is the most popular and convenient mode for transferring money.