What is NACH?
NACH is quite popular these days as it provides numerous benefits to financial institutions and corporations. But before knowing the benefits and how it works, we first need to understand what NACH is.
NACH or National Automated Clearing House is a kind of payment service for corporates, financial institutions, and banks which is centralized and electronic. The NPCI or the National Payment Corporation of India had set it up to initiate the best practices in electronic transactions. NACH is an improved version and replacement of ECS or Electronic Clearing System from May 2016.
E-commerce businesses nowadays prefer using the services because the NACH mandate has the capability of facilitating electronic transactions at a high volume. Moreover, although it may appear to be repetitive, it doesn’t face any geographical barriers in the country during the transactions.
The Mandate Management System or MMS is also an important aspect of NACH. The NACH mandate is nothing but an authorization that the customers provide while making payments on e-commerce websites for crediting or debiting funds. There are two types of NACH mandates — NACH debit and NACH credit. In this regard, let us now discuss how it works and why it is beneficial for e-commerce merchants.
How Does NACH Work?
NACH will simplify and manage those payments efficiently whenever you need to make bulk payments across multiple banks or any kind of donations, credit card bills, or any recurring payments. It will help you to manage your e-commerce platforms quite easily and cost-effectively.
Let us now look into how it works:
- The NACH mandate is collected by the e-commerce websites or other such agencies from the customers. By providing this, the customer gives the authorization to the platform to debit the money from his account for a certain period and at a certain frequency.
- After this, the e-commerce websites verify the customer details in the mandate form.
- The NACH mandate form is then forwarded by the particular platforms to its banks for payment.
- The e-commerce website’s bank then shares the mandate with the NPCI.
- The NACH mandate is then sent to the customer’s bank for approval after the entire validation process is complete.
- Once the bank approves the request, the e-commerce websites can collect the money from the customer’s account.
Benefits of Using NACH
NACH has a host of benefits in e-commerce business platforms. Let us discuss some of them:
- E-commerce business platforms prefer using the services of NACH because this one-time digital authentication allows them to retain the maximum number of their customers for its easy payment method. At the start of every billing cycle, it automatically debits the money from the customer’s account. This reduces the hassles of customers repeatedly authorizing a payment gateway at regular intervals.
- It reduces administrative costs as well as costs related to invoicing.
- Accounting processes also get easier because of this mandate. It becomes entirely digital and paperless.
- The process is highly secured, so the details of the customers remain completely safe.
- Since the entire process is very flexible and simplified, payment clearances are quickly done.
- Regular and periodic payments like pensions, salaries, etc., are timely dispersed to the accounts. This creates better customer service.
- Using the NACH mandate eliminates regional or geographical barriers, which allow the transactions to take place on the same day, anywhere within the country.
- With the help of this superior mandate, the member banks can now create their products and solutions for addressing user needs.
NACH system is an effective method through which businesses and corporations dispense with bulk payments. The method is not only safe but also liberates one from the hassle of making payment by entering the same details over and again. In other words, with the NACH system, running a business or making payments which are recurring in nature become quite efficient.