The Different Modes Of Payment Available to Business and Consumers

Since the inception of the financial structure different payment options have been made available for smooth functioning of business and retail transactions. Let us discuss some of the methods that have survived the test of time and others that are recent and developing.

What are the different modes of payments prevalent today?

In today’s fiscal environment modes of payment can be divided into two broad categories, firstly, the Traditional payments methods and secondly, the E-commerce modes.

Traditional payments methods

Cash Payment

Printed currency is the reason trade flourished in the first place. With the exchange of currency in the form of notes and coins a person could purchase anything from the open market. Cash is a widely for retail payments. This method requires the presence of the buyer and seller at the time of the transactions and is suitable only for smaller amounts and businesses.

Telegraphic transfer

Here money is deposited at a bank which has a branch that can be accessed by the payee. After receipt of the money and the charges applicable for the service from the payer, the bank telegraphically informs the payee’s branch office to credit the amount into the payee’s account who can then withdraw the amount at his convenience. Though simple, it is not a popular mode for transactions.

Money or Postal Order

These are service rendered by the Postal authority of India where the money is transmitted through post. Money orders have to be bought from the postal department but in case of Postal Orders, it a form of cheque which can be crossed. When not crossed it works as a substitute for cash.

Bills of Exchange

More than a form of payment it is a short term credit given by the creditor on the condition that the debtor promises to pay the sum after a period agreed upon by the parties. It has to be in writing and therefore accepted by banks even today. It even allows the creditor to get his money before hand by discounting the bill with any bank.


It a widely used method of payment in business networks today. With every account opened with a bank the account holder is provided with a cheque book which contains ‘cheque leafs’ / ‘cheques’. These cheques can be used instead of cash and allow the creditor to receive money in his bank account directly from the debtor’s account. In the alternative the creditor can withdraw the cheque amount directly from the debtors account.

Bank Draft

It is an order to pay, drawn on one bank branch, to pay to the account of another. This is a systematic and secure way of accepting payments and is used mostly by Government authorities or institutions.

E-commerce modes

Credit card

Today, the credit card is the most common electronic method of payment. When you use a credit card it is the card issuing company who pays for your purchase, then at the end of the month you settle the monthly payment cycle by paying back the amount thus paid along with the applicable charges to the company.

Debit cards

Another commonly used electronic payment method that allows you to pay directly from your bank account without any transaction charges or fees. On payment your account is directly debited for the amount of purchase.


The use of wire transfers has become a norm in the business sector for financial transactions. These wire transfers are suitable for larger amounts and can be executed through a safe gateway via the internet from one bank account to another. Moreover, they are simple and save valuable time.

Also Read: What you need to know about NEFT


Electronic money is just like trading cash but over the internet. This form of payment can be used when the debtor and creditor have signed up with the company providing e-cash. Most e-money is equivalent to the currency prevalent in the country.

Even though traditional methods are still used by most business, industries today, have understood the advantages of electronic payments methods and are putting systems in place for paper less transactions.


What you need to know about NEFT

National Electronic Fund Transfer better known as NEFT is an electronic payment mechanism that allows individuals, including body corporates, to execute monetary transactions across the nation.

No platform or geographical limitations

Individuals, with the help of NEFT, can transfer money from their bank account to the bank of account of the counter party without any paper trail. The service can be performed for inter and intra bank transactions. Moreover, the core banking facility works as an added advantage as the transaction can be executed from any branch in the country of the particular bank where the individuals holds his account.

Once the transaction is executed the bank is required to send the confirm notification to the customer via SMS or email. This helps the individual to keep track of his dealing from anywhere in the country.

NEFT transfers are not only useful for Individual fund transfer but also can be used for transactions like loan EMIs and credit card bill settlements.

Is a bank account necessary for NEFT?

For executing an NEFT transaction there is no need for the individual to have a bank account with the bank branch. If the branch is NEFT enabled NEFT can be executed by depositing the amount, meant for transfer, in cash and by paying the requisite charges

NEFT Timings

NEFT works like e-cheques; therefore, they are executed in batches and not in real time basis. In most banks, the transactions on weekdays are settled in 11 batches and the transaction on weekends are settled in 5 batches.

Limitation of transactions

Like any other money transfer system, there is a limitation on how much you can transfer through NEFT in one transaction. Currently, the limit is stipulated at Rs. 50,000 per transaction for remittance within India and to Nepal. There is no maximum or minimum limit for the amounts that are transferred during the day.

Delay in execution or return

Generally, the transaction goes through in two working days i.e. the recipient shall receive the monies through NEFT within two working days.

If there is a delay in executing the transaction at the bank’s end the bank is liable to compensate for the delay with penal interest paid to the customer. The interest rate would be at the rate indicated by RBI plus 2% for the number of days delay or till the date of refund of the amount in case of return.

The IFSC code is necessary for executing any transaction through NEFT as it helps indicate the bank branch through which the amount to be debited from and also identifies the creditor branch. This ensures security and backtracking of the NEFT transactions.

Why Do We Need The Bank MICR Code?

Industrialisation of the Indian economy led business transactions beyond the confines of one particular area or banking network. The financial sector saw a surge in the volume of bank dealings from all businesses, big or small, and therefore there was a need to streamline and fortify the process of verification of the financial instruments for the smooth functioning of the economy.

What is the MICR code?

In the 1980s, the Reserve Bank of India introduced different systems in place to regulate the banking transactions. The MICR coding system was one of the most important of such inclusions and the system is even prevalent today.

MICR or ‘Magnetic Ink Character Recognition Technology’ is a character identification mechanism used for the purpose of systematic processing of the cheque during the payment cycle. Generally, this code is printed at the bottom of every cheque leaf with a magnetic ink or tone in distinct typefaces. The ink contains iron oxide and can be read and verified by humans and also by specialized machines which leave little room for error.

Being a simple nine digit number each set of digits help to identify the bank and its branch. The first three digits signify the city where the branch belongs to and therefore it may sometimes be similar to the pin code of the area. The next three digits represent the bank and the last three digits are the actual code that identifies the branch.

The Importance of the MICR code

The main purpose of the code is to provide security to your cheque transactions.

Today, the MICR code has become and crucial part of online money transfers. It helps identify the bank and the corresponding branch which lets the RBI process the transactions without delay.

Due to the introduction of the code, the possibility of human error has been negated to the smallest denominator. Also, the use of machines to read the code makes the process faster and keeps no room for error. With the help of the code the machine can read and identity as to which bank and branch does the cheque belong to, which saves time and improves the transaction cycle.

Moreover, even when the code is not visible to the human eye for reasons due to stamping or other markings on the cheque, the machine has no difficulty in identifying the code.

MICR code is mandatory for all banks and it must be printed on the cheque book and cheque leaves along with the IFSC code.


All You Need To Know About The Bank SWIFT Code

The International Organisation for Standardisation (ISO) has approved a standard format of Business Identifier Code (BIC) for banks and non-banking institutions, known as the SWIFT code. This code, facilities the business transactions conducted internationally via the said institutions.

SWIFT stands for ‘Society for Worldwide Interbank Financial Telecommunication’. It is also commonly known as BIC code or ISO 9362 or SWIFT ID or SWIFT-BIC. This code is often referred to as Business Entry Identifier (BEI) for non-banking institutions.

Whatever the name it is referred to as, the code has one function- it is a unique alphanumeric identifier for a particular institutions branch within the SWIFTs international network.

Why is the SWIFT code necessary?

It is an essential parameter for web banking applications. The code is needed to execute transactions between two banks through their corresponding branches in the swift network. For executing a transaction through such applications the International Bank Account Number (IBAN) of the beneficiary has to be accompanied with the SWIFT code of the respective branch. Without the code the SWIFT enabled system will not accept the transaction.

IBAN and the SWIFT code:

Both these codes are essential for international transactions through SWIFT. Their significance lies in what the two codes signify. The former identifies the individual’s bank account from where the funds are to be debited/credited and the latter identifies the branch of the respective bank account.

In some countries like the USA and New Zealand you will only need the SWIFT code to execute the transactions, whereas, in most European countries you will require both the IBAN and SWIFT code to complete your transaction.

The introduction of the IBAN has negated the confusion caused by different variations of bank account numbers and has made execution of international transactions quicker.

In case an account does not have a IBAN code then while making payment to such an account a National Clearing Code (NCC) is mandatory. Now-a-days most institutions in the SWIFT network have IBAN and SWIFT, the NCC is used mostly in countries outside the Europe.

Importance of SWIFT code

The code is the backbone of international wire transfers. It guarantees accuracy and security for transactions. Also with the help of the SWIFT code back tracking the transactions is made possible.

Today, owing to the SWIFT code, business transactions across the globe can be completed within a day’s time, giving a new edge to international dealings.

An institution can register for a SWIFT code at the ‘SWIFT’ headquarters located La Hulpe, Belgium.


Bank IFSC Code And Why Is It Important For Online Transactions

Ever wondered what is the significance of the IFSC code that you specify before every direct account transfer?

In the Indian banking system IFSC (Indian Financial System Code) is an alphanumeric code unique to every bank for identifying the bank and its corresponding branch for a particular account during direct transfers like NEFT, RTGS an IMPS.

This code is mostly printed on the initial information page of the cheque book and also appears on each cheque leaf mostly on the top.

NEFT and IFSC code

NEFT is a nationwide financial transfer system that allows both individuals and body corporates to transfer funds without the need to exchange physical instruments like cheques or demand drafts etc. Through NEFT, funds, as per the instructions of one account holder, can be transferred from his bank account in the country to the bank account of another held with any other bank within the country. Here the transactions do not take place in real time. The bank receives all the instructions regarding transfers and settles them in batches. Hence, NEFTs are also known as e-cheques.

With the number of banks prevalent in the Indian banking network, the IFSC code plays a vital role in securing and tracking these electronic transactions. It ensures that the funds reach the intended bank account from the correct bank account.

RTGS and IFSC code

RTGS or Real Time Gross Settlement as the name suggest is an order to order based electronic transfer. Here the transactions are executed as and when the particular instructions arrive from the respective account holder. In this case there is no batch settlement or netting required. The transactions are executed as soon as they are approved.

In this case the IFSC code is needed to identify the correct bank and branch to which the funds need to be transferred.

IMPS and IFSC Code

IMPS also known as Immediate Payment Service was introduced in 2010. The system offers 24X7 interbank transfer facilities around the country. This means that money can be transferred from one bank account to another, within the country using the internet, through mobile apps and ATMs. IMPS have proven to be the most economical mode of transferring funds till date.

Not only is it functional but also a secure system as it implements every transaction using the IFSC code, making tracking simple and the execution accurate.

This simple code has paved the way for a dynamic new transaction system that has not only facilitated businesses to overcome the regular day-to-day hassle of payment and receipts, but it has also allowed individuals the luxury to execute transactions without having to approach their bank.