What is the Full Form of NACH?
NACH stands for National Automated Clearing House. This platform is for clearing funds and it was set up by the NPCI (National Payments Corporation of India) to do away with the two-factor authentication requirement of electronic interbank transfers and process recurring high-volume transactions of both low and high value, automatically.
For example, if you apply for a health insurance plan today and sign up for the NACH facility with the bank, your premiums will get paid automatically from your account without you having to initiate or track them.
What is nach? NACH was introduced as a new payment mechanism in 2016 as a substitute to NEFT and RTGS. It is built on a technology platform called Immediate Payment Service (IMPS). The primary objective of NACH is to transfer funds instantly between banks and their customers’ accounts.
What are the differences between ECS and NACH?
The ECS (Electronic Clearing Service) mandate was introduced by RBI to assist with periodic payments. It functions as a system that allows electronic credit and debit transactions from your account at regular intervals. While this may seem similar to the offerings of NACH, there are some critical differences between the two.
The ECS is primarily used for payroll processing, pension payments, and government subsidies. It is also used for payment of salary dues to employees and for remittances by employers to their employees.
The NACH system is designed for small value payments made by customers who have no access to a bank account or where banks have not yet set up branches in rural areas. The NACH platform provides an alternative method of receiving cashless payments from customers who use mobile phones instead of bank accounts to make purchases or receive money transfers.
What are the Types of NACH?
Electronic funds transfers are made easier by the NACH e mandate. NACH stands for National Automated Clearing House and refers to a system that facilitates the transfer of funds from one bank account to another over the internet.
There are two types of NACH mandates that facilitate the electronic transfer of funds:
NACH debit is designed to make the process of collecting recurring payments like EMIs, bills, etc., easier for organizations. It helps automatically deduct funds from a large pool of customers in a safe and secure way by means of a single settlement. Organizations can also track NACH debit transactions via online channels.
NACH credit allows authorized businesses to make sizable payments directly into the bank accounts of a large pool of beneficiaries. A centralized unit controls the high-value transactions done through a single system. Corporates and other large organizations can leverage the NACH credit facility to distribute salaries, interest, etc.
NACH functions as a centralized system for multiple ECS systems. It uses technology to offer an advanced platform that is capable to handle huge volumes of repetitive payments. The rules and practices for electronic transactions are easy to follow and common for all participants. It supports Aadhaar-based and mobile-based ACH transactions.
NACH is a centralised clearing house model which enables the settlement of financial transactions across different banks in India in real time. In this model, the central bank has to come up with guidelines on how the transaction should take place. This can be done by issuing circulars or through regulations.
Under this model, there are two main parties involved – payer and beneficiary – who initiate the transaction through their respective banks (or other institutions). The beneficiary’s account will be credited at the end of each day with payments received from various payers during the day. This will help in reducing liquidity risk for banks as well as customers who do not have savings accounts or who have not yet been included into electronic banking systems like net banking etc.