Electronic Account Transfer
Apart from card based payment systems there are many alternative electronic payment systems. With the advent of computers, network technologies and electronic communications a large number of alternative electronic payment systems have emerged. These include ECS (Electronic Clearing Services), EFT (Electronic funds transfers), Real Time Gross Settlement system (RTGS) etc. These Electronic Payment systems are used in lieu of tendering cash in domestic and international transactions.
Electronic Clearing Service can be defined as repeated transfer of funds from one bank account to multiple bank accounts or vice versa using computer and Internet technology. The payer instructs the bank to debit from his bank account and credit it to one or more payee bank account provided amounts and dates of the payments earlier. This system provides the convenience of paperless payments.
Advantages of this system are bulk payments, guaranteed payments and no need to remember payment dates. It can be used by institutions for making payments such as disbursing of salary, pension or dividend interest among shareholders. Similarly, individual bank customers also can make small value repetitive payments such as paying EMI of a loan, electricity bills, telephone bills, insurance premium, as well as SIP investments. See Figure 16.7
ECS can be used for both credit and debit purposes i.e. for making bulk payments or bulk collection of amounts.
● ECS credit: ECS credit is used for making bulk payment of amounts. In this mode, a single account is debited and multiple accounts are credited. This type of transactions are Push transactions.Example: if a company has to pay salary to its 100 employees it can use ECS credit system than crediting every employees’ account separately.
● ECS debit: ECS debit is an inverse of ECS credit. It is used for bulk collection of amounts. In this mode, multiple accounts are debited and then a single account is credited. This type of transactions are Pull transactions. Example: The insurance premium of bulk number of customers is debited from customer’s bank account on their prior consent and paid to insurance company.
EFT is known by a number of names across countries. In India, it is called as N-EFT (National Electronic Fund Transfer), in the United States, they may be referred to as “electronic cheques” or “e-cheques”. National Electronic Funds Transfer (NEFT) is an electronic funds transfer system initiated by the Reserve Bank of India (RBI) in November 2005. It is established and maintained by Institute for Development and Research in Banking Technology (IDRBT). NEFT enables a bank customer to transfer funds between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via electronic messages. Unlike RTGS, fund transfers through the NEFT do not occur in real-time basis.
Electronic Funds Transfer (EFT) is the “electronic transfer” of money over an online network. The amount sent from the sender’s bank branch is credited to the receiver’s bank branch on the same day in batches. Unlike traditional processes, EFT saves the effort of sending a demand draft through post and the inherent delay in reaching the money to the receiver. Banks may charge commission for using this service. EFT is a widely used method for moving funds from one account to another in B2B business models.
Real Time Gross Settlement system (RTGS) is a payment system particularly used for the settlement of transactions between financial institutions, especially banks. As name indicates, RTGS transactions are processed at the real-time. RTGS payments are also called as push payments that are initiated (“triggered”) by the payer. RTGS payments are generally large-value payments, i.e. high-volume transactions.
The development and maintenance of NEFT or RTGS systems worldwide is driven primarily by the central bank of a country. (RBI in India)
Real-time gross settlement transactions are:
● Unconditional - the beneficiary will receive funds regardless of whether he fulfills his obligations to the buyer or whether he would deliver the goods or perform a service of a quality consistent with the order.
● Irrevocable - a correctly processed transaction cannot be reversed and its money cannot get refunded (the so-called settlement finality).
Electronic wallets (e-wallets) or electronic purses allow users to make electronic transactions quickly and securely over the Internet through smartphones or computers. The electronic wallet functions almost the same as a physical wallet in term that it holds our money. Electronic wallets were first recognized as a method for storing money in electronic form, and became popular because it provides a convenient way for online shopping.
With the development of advanced Internet, the use of electronic wallets turned out as an efficient transaction tool. This is evidenced by the many E-Commerce websites that use electronic wallets as a transaction tool. There are several electronic wallet services that are now widely used. e.g. :PayPal, SBI Buddy. See Figure 16.8