NACH stands for the National Automated Clearing House, while the full form of ECS is Electronic Clearance Service.
Both these are payment methods that help companies, Government and other entities make bulk payments such as salaries, pensions, interests, dividends and more.
Compared to ECS, NACH is a centralized and web-based clearing service that eases the work of financial institutes and banks. They do that by consolidating all regional ECS into one National Payment System. This way, they remove all geographical barriers that come in the smooth conducting of efficient banking.
Why banks switched from ECS to NACH?
The turnaround time (TAT) for processes such as mandate digitization, reduction of activation, and cost-cutting for operation in NACH is much lesser than ECS. The activation of the ECS mandate
used to take about 30 days compared to 10 days taken by NACH.
NACH has only a one-time registration process, and that is also true for ECS. However, it is the time taken for the process of registration that makes the difference between them. The NACH comes with reduced time for registration.
Effects on SIPs
Considering the circular notified by the National Payment Corporation of India (NPCI), it is useful to use NACH forms for transactions. It is because banks may soon stop accepting ECS forms. It is easier to get NACH Form from company offices or websites.
You are now clear on why banks have made a move on from ECS to NACH and may use the same if you were looking to set up periodic or bulk payments on bank accounts.