E-Payment Mechanism of Banks

E PAYMENT MECHANISM OF
BANKS
Dr Meenakshi Sharma
TOPICS UNDER E PAYMENT MECHANISM OF BANKS:
PLASTIC CARDS
NEFT
RTGS
IMPS
ECS
PAYMENTS WALLETS
Underline topics will be covered in this lecture
NEFT (National Electronic Funds
Transfer ) NEFT is a nation-wide centralised
payment system owned and operated
by the Reserve Bank of India (RBI).
Using NEFT, people can electronically
transfer money from any bank branch
to a person holding an account with
any other bank branch.
National Electronic Funds Transfer System : is establish to facilitate

an efficient, secure, economical, reliable and quick system of funds
transfer and clearing in the banking sector, and to relieve the stress
on the existing paper based funds transfer and clearing system.
What are the advantages of using NEFT
system?
 Round the clock availability on all days of the year.
 Near-real-time funds transfer to the beneficiary account and
settlement in a secure manner.
 Positive confirmation to the remitter by SMS / e-mail on credit to
beneficiary account.
 No levy of charges by RBI from banks.
 No charges to savings bank account customers for online NEFT
transactions.
 Besides funds transfer, NEFT system can be used for a variety of
transactions including payment of credit card dues to the card
issuing banks, payment of loan EMI, inward foreign exchange
remittances, etc.
 Available for one-way funds transfers from India to Nepal.
How does the NEFT system operate?
St • An individual / firm / corporate to transfer funds through NEFT can use the internet/mobile banking
ep facility offered by his/her bank for initiating online funds transfer request.
1
St
• The remitter has to provide details of beneficiary such as, name of the beneficiary, name of the bank
ep
2 branch where the beneficiary has an account, IFSC of the beneficiary bank branch, account type and
account number, etc. for addition of the beneficiary to his/her internet/mobile banking module.
St • Upon successful beneficiary addition, the remitter can initiate online NEFT funds transfer by authorizing debit to
ep his/her account.
3
• Alternatively, the remitter can also visit his/her bank branch for initiating NEFT funds transfer through
branch/off-line mode. The customer has to fill-in the beneficiary details in NEFT application form
St
available at the bank branch and authorize the branch to debit to his/her account to the extent of the
ep
amount requested in NEFT application form.
3
St • The originating bank prepares a message and sends the message to its pooling centre, also called the
ep NEFT Service Centre.
4
St • The pooling centre forwards the message to the NEFT Clearing Centre, operated by the RBI, to be included for the next
ep available batch.
6
St • The Clearing Centre sorts the funds transfer transactions beneficiary bank-wise and prepares accounting entries to
ep receive funds from the originating banks (debit) and give the funds to the beneficiary banks (credit).
7
St • Thereafter, bank-wise remittance messages are forwarded to the beneficiary banks through their pooling centre (NEFT
ep Service Centre).
8
St • The beneficiary banks receive the inward remittance messages from the Clearing Centre and pass on the credit to the
ep beneficiary customers’ accounts.
9
IFSC or Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch. It’s a 11-digit code with
the first 4 alpha characters representing the bank, and the last 6 characters representing the branch. The 5th character is 0 (zero).
'Real Time' means the processing of instructions at the time they are received;
'Gross Settlement' means that the settlement of funds transfer instructions
occurs individually.
RTGS’ or Real Time Gross Settlement is a fund transfer method through which
money is sent in ‘real time’ basis without any delays. This electronic fund
transfer system allows the money sent by the remitter to immediately reach the
payee/beneficiary as and when the money transfer transaction is initiated. Here,
‘Gross Settlement’ refers to the processing of transactions on an individual basis
and not in a batch wise system. RTGS is typically meant for larger value
transactions and the minimum amount that can be sent via this mode is Rs.2
lakh.
Money can be sent using RTGS through net banking. To initiate such a
transaction, it is important to collect some details from the payee such as
account number, bank name, IFSC code and account holder name..
Required for an RTGS transaction:
 The amount that needs to be transferred in rupees
 Name of the payee/beneficiary as in the bank account
 IFSC code of the payee/beneficiary
 Account number of the payee/beneficiary
 Name of beneficiary bank and bank branch
The RTGS payment system is maintained by the Reserve Bank of India (RBI)
and hence is a safe and reliable method of sending and receiving money at
any given point of time in the country. In fact, RTGS is one among the
fastest ways to send money to anyone. It is much faster than the NEFT
method of payment.
 IFSC or Indian Financial System Code is an alpha-numeric code that uniquely identifies a
bank-branch. It’s a 11-digit code with the first 4 alpha characters representing the bank,
and the last 6 characters representing the branch. The 5th character is 0 (zero).
What are the benefits of using RTGS?
RTGS offers many advantages over the other modes of funds
transfer:
It is a safe and secure system for funds transfer.
The system is available on all days when most bank branches
are functioning, including Saturdays.
There is real time transfer of funds to the beneficiary account.
The remitter need not use a physical cheque or a demand
draft.
The beneficiary need not visit a bank branch for depositing
the paper instruments.
Remitter can initiate the remittances from his / her home /
place of work using internet banking, if his / her bank offers
such service.
IMPS
 Immediate Payment Service (IMPS) is an instant interbank electronic
fund transfer service through mobile phones. It is also being extended
through other channels such as ATM, Internet Banking, etc.
 The benefits of IMPS given to the consumers are as follows:

 Using IMPS the money will be credited in the beneficiary’s account
within a few seconds.
 IMPS is safe, secure and cost-effective.
 IMPS is available for 24 hours in a day and even on holidays.
 The customer can make intrabank as well as interbank payments.
 IMPS can be used on a mobile phone, internet banking and even
ATMs.
Factors that differentiate the 3 modes
Timing
Transaction limit
Service fee
Transaction speed
NEFT (National Electronic Funds Transfer) and RTGS(Real Time
Gross Settlement) are the two main fund settlement mechanisms
used by banks in India to conduct one to one transactions. These
transfer protocols are maintained by the Reserve Bank of India.
IMPS (Interbank Mobile Payment Service/Immediate Payment
Service) on the other hand is a mobile based payment
mechanism introduced in 2010 by the National Payments
Corporation of India to allow customers to transfer money
instantly, facilitating instant remittance across multiple
platforms.
TIMING
 The available hours for each type of fund transfer depend on
the individual bank and their customer service schedule.
 NEFT and RTGS services will be unavailable on weekends and bank holidays,
while IMPS services can be availed round the clock.
 NEFT transfers funds in timed batches, while RTGS and IMPS are real-time
transfer modes.
 Transaction Timing of RTGS, NEFT and IMPS
 Days NEFT/RTGS Monday to Saturday 8:00 AM to 6:30 PM 8:00 AM to
4:00 or 4: 30 PM
 With IMPS, funds can be transferred any time during the week or weekends.
 Note that NEFT and RTGS is not available on 2nd and 4th Saturdays of the
months. It is also not available on bank holidays.
 Not all banks provide RTGS facility, make sure the recipient's bank has the
facility before you make the transfer.
TRANSACTION LIMIT
NEFT and IMPS have no minimum value, while RTGS
has a minimum fund value of Rs. 2 lakhs. Each mode
has a different maximum fund limit.
FEE
The fee charged for the fund transfer transaction
varies between the three modes. RTGS is
comparatively expensive, while NEFT and IMPS
are less so.
TRANSACTION SPEED
NEFT has fixed batch time slots and can take around 2
hours for the recipient to receive the funds, whereas
RTGS and IMPS transfers take place in real time and
are usually complete within minutes.
ECS
 ECS stands for Electronic Clearing Service. ECS is an electronic mode
of funds transfer from one bank account to another.
 It can be used by institutions for making payments such as distribution
of dividend interest, salary, pension, among others.
 It can also be used to pay bills and other charges such as telephone,
electricity, water or for making equated monthly installments
payments on loans as well as SIP investments.
 It also facilitates electronic credit/debit transaction associated with
customer's account.
 It is usually used for transactions that are repetitive or periodic in
nature.
https://m.rbi.org.in/Scripts/FAQView.aspx?Id=60
https://www.investopedia.com/
https://www.paisabazaar.com/banking/difference-bet
ween-neft-rtgs-imps/
https://www.bankbazaar.com/ifsc/real-time-gross-set
tlement-system-rtgs.html
https://www.goodreturns.in/classroom/2015/06/what-
is-the-difference-between-rtgs-neft-imps-366853.htm
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E PAYMENT MECHANISM OF

National Electronic Funds Transfer System : is establish to facilitate

 The benefits of IMPS given to the consumers are as follows:

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