This article gives the readers an introduction to the Indian payment system. Beginning with money as a medium of exchange, the article goes on to discuss paper-based clearing house, the advent of Electronic Clearing House (ECH), Cheque Truncation System (CTS), National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement Systems (RTGS). The article also discusses the introduction of Structured Financial Messaging Service (SFMS) as a messaging infrastructure and the introduction of internet and mobile banking in the Indian payment scenario.

Considering the need to address the increasing demand for payments and settlements in India, the RBI introduced Electronic Clearing System (ECS) in India, in 1995. By far, ECS is the most preferred way of interbank funds transfer for large volume transactions and settlements. It is managed by the 15 major centers of RBI across India and several other authorized branches of SBI.

Transactions involving a single large debit and multiple credits, as in the case of salary payments, pension, dividend and interest payments or transactions involving multiple debits and single large credits, as in the case of electricity and telephone bill payments, are best routed through an ECS transfer. The entire clearing cycle in this case may take around one or two days for final settlement, which is much improved than the conventional clearing house or paper-based clearing house. First ECS and now NEFT and RTGS, are available to corporate as well as retail customers of a bank.Time as a differentiator between the various transactions Situational preference of the three payment systemsMode of customer transaction posting and settlement transaction posting.

The Accounting World Magazine, Payment Systems in India, Electronic Clearing House, ECH, Cheque Truncation System, CTS, National Electronic Funds Transfer, NEFT, Real Time Gross Settlement Systems, RTGS, Structured Financial Messaging Service, SFMS, Internet and Mobile Banking, Customer Transactions, Cash Managements, Telephone Bill Payments, ECS Transactions, Foreign Currency Transactions, Indian Rupees Currency Transaction, Finacle Core Banking Solution.