Explained: Differences between ECS and auto debit

Indian banks are busy sending alert emails to their customers as the Reserve Bank of India (RBI) demanded manual nod from individuals for credit or debit card linked auto-debit transactions starting October 1, 2021. According to the RBI directive, banks are required to send a notification to customers five days before the auto payments are scheduled against his/her credit or debit card. The debit would be allowed once it is confirmed by the customer. If the amount is more than Rs 5,000, the payment has to be authenticated via OTP every time by the customer.

For the longest time, Electronic Clearing System (ECS) has been in use for automated credit and debit transactions. However, it’s important to understand the difference between auto-debit and ECS to avoid any unnecessary confusion.

Firstly, you must know about two types of ECSs – ECS credit and ECS debit. The former is when an institution makes credit to your savings account (like dividends or salary) while the latter is when you choose to make recurring payments such as EMI towards your loans, or SIP payments towards mutual funds, etc. This ensures you don’t miss the due dates on various bills. Now, the latest rule to be implemented from October 1 will impact the debit part of ECS and is limited to debit card and credit card transactions.

ECS vs Auto debit

ECS is an electronic mode of payment/receipt for transactions that are repetitive and periodic in nature. It’s mostly used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or bulk collection of amounts towards telephone, electricity, water dues, loan instalment repayments, periodic investments in mutual funds, insurance premium etc. ECS includes transactions processed under National Automated Clearing House (NACH) that is operated by National Payments Corporation of India (NPCI).

Meanwhile, direct auto debit can only be set up by the organisation/bank to which you are making a payment. Usually, you sign an E-mandate that gives the company permission to take funds from your account in an agreed way. It normally confirms who is receiving the payment, the account to be debited, the amount and the dates of the payment.

What are standing instructions?

Payment of monthly EMIs for home loan, car loan, insurance premiums, school fees, subscription plans are among the most common standing instructions set by customers for auto-payment. Since there will be no recurring auto payments from credit, debit cards and UPI from October 1, standing instructions for auto-debit will require additional authentication.

Make sure to update your registered mobile numbers with the bank and other institutions that are linked to your monthly auto debit transactions for quick authentication.