Money orders & e-transfers
With the advent electronised fund transfer system, traditional paper-based money order is now almost out of demand.
When we track down the history of payment system across the globe, we cannot overlook the mode of money transfer through the money order system having its own glorious past. It was a private Great Britain firm which invented the money order system in 1792. Being expensive mode of money transfer, the system didn’t achieve much success. However, in 1836, another private firm owned the system which lowered the fees that significantly led to the increased popularity and usage of the system.
It was in 1880 when India Posts launched this paper based money order system, which is still in vogue. However, after 130 years of its launch, it is in the process of thoroughly revamping the whole system of money order by harnessing the state of art information technology. This is done to make the system compete in the existing revolutionised fund transfer system. Notably, India Post has recently introduced electronic variants in the form of electronic money order (eMO) and instant money order (iMO).
Traditional Money order is a system of fund transfer in which a payer who wants to send money to a payee pays the amount and a small commission at a post office and receives a receipt for the same. The amount is then delivered as cash to the payee after a few days by a postal employee (Postman), at the address specified by the payer. A receipt from the payee is collected and delivered back to the payer at his address.
In other words, money order is an order issued by one post office to another post office to pay a certain sum of money only to the person named therein. If you want to send money then first you have to fill up a money order form which is available at all post office on payment. The duly filled in form along with the money to be remitted is then handed over to the post office. The money order form also contains some space where you can write down your message for the addresses. The filled in form is then sent to the post office where payment is to be made. The postman carries the form with him and after obtaining the signature from the addressee, handed over the money to him. For this service, post office charges a specific commission from the sender, which varies according to the amount of money sent.
Money order system has commonly used for transferring funds to a payee who is in a remote, rural area, where banks may not be conveniently accessible or where many people may not use a bank account at all. Money orders were the most economical way of sending money in India for small amounts.
With growing expansion of bank branch network in the length and breadth of the country to reach to the unreached/unbanked areas and putting in place an electronised payment system, the money transfer through a traditional paper-based money order is now hardly used by the people. In the last decade a number of electronic alternatives to money orders have emerged and have, in some cases, supplanted money orders as the preferred cash transmission method.
As far as electronic fund transfer (EFT) system goes, we have two popular systems - National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) systems - in place through which money can be transferred at the speed of a bullet from one bank to another. Today transfer of money within a bank from one branch to another branch too happens at an electric speed.
Real Time Gross Settlement (RTGS) system enables money to move from one bank to another on a real time and gross basis. Simply put, real time means the beneficiary bank receives the instructions for fund transfer immediately and gross means that it is not bunched with any other transaction and settlements of funds transfer instructions happen individually. Since the funds settlement takes place in the books of the Reserve Bank of India (RBI), the payments are final and irrevocable.
NEFT is a payment system which facilitates one-to-one funds transfer. Like RTGS, NEFT also transfers funds from one bank, but unlike RTGS the settlement takes place in batches (that may include transfers from various individuals) rather than individually. The batches are settled in hourly time slots.
The system has no geographical restriction within the country. Individuals, firms or corporates maintaining accounts with a bank branch can transfer funds using NEFT. Even such individuals who do not have a bank account (walk-in customers) can also deposit cash at the NEFT-enabled branches with instructions to transfer funds using NEFT. However, such cash remittances will be restricted to a maximum of Rs.50,000/- per transaction. Such customers have to furnish full details including complete address, telephone number, etc. NEFT, thus, facilitates originators or remitters to initiate funds transfer transactions even without having a bank account.
There are certain pre-requisites for putting through a money transfer transaction using NEFT. First, originating and destination bank branches should be part of the NEFT network. Second, beneficiary details such as beneficiary name, account number and account type, name and Indian Financial System Code (IFSC) of the beneficiary bank branch should be available with the remitter. For net banking customers, some banks provide the facility to automatically pop-up the IFSC once name of the destination bank and branch is highlighted / chosen / indicated / keyed in.
What is this IFSC? How can one locate the IFSC of a bank-branch?
IFSC is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system. This is an 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).
Bank-wise list of IFSCs is available with all the bank-branches participating in NEFT. List of bank-wise branches participating in NEFT and their IFSCs is available on the website of Reserve Bank of India. These codes are also available on the banks’ websites.
How is RTGS different from NEFT?
Currently NEFT operates in hourly batches. It has 11 settlements from 9am to 7pm on weekdays and five settlements from 9am to 1pm on Saturdays. So, in case you initiate a transaction after a settlement time you have no option but to wait till the next settlement time. But that’s not the case with RTGS transactions, since they are processed constantly throughout the RTGS business hours- from 9am to 4.30pm on week days and from 9am to 1.30pm on Saturdays for settlement at the RBI end. However, the timings that each bank follows may vary.
How much amount can be transferred through these modes? As far as NEFT goes, it does not have a minimum or maximum limit of amount you can transfer. As far as RTGS goes, it is mostly meant for large transactions. The minimum amount that can be remitted through it is Rs. 2 lakh. RTGS does not have an upper ceiling for transactions.
(The views are of the author & not the institution he works for. Feedback: firstname.lastname@example.org)
Lastupdate on : Mon, 20 Feb 2012 21:30:00 Makkah time
Lastupdate on : Mon, 20 Feb 2012 18:30:00 GMT
Lastupdate on : Tue, 21 Feb 2012 00:00:00 IST
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