The 21st century will go down in history as the era of several innovative digital payment systems that will transform the entire banking industry. Now a customer need not even visit a branch for opening an account or maintenance of records and instead use his mobile for almost all kinds of intra-bank and interbank transactions at the click of a button with newly developed features like Paytm, Google pay, Amazon pay from anywhere and anytime.
This boils down to the fact that a customer is today not a customer of a particular branch but a bank and can avail of intra banking transactions like NEFT, RTGs, IMPs, UPI apart from traditional intra bank clearing systems through internet banking or mobile banking.
The way things are moving don’t be surprised if the age-old dependence on physical cash will decrease day by day.
Positive payment service
One such innovation is the Positive payment service – an electronic authentication system introduced by the Reserve Bank of India (RBI), with effect from 01.01.2021 to promote transparency in digital transactions without the involvement of any manual interference.
The PPS is expected to provide an additional layer of security to address the rising instances of cheque fraud. As reported by the RBI, the total volume of fraud transactions in India using forged or counterfeit cheques was pegged at Rs. 64,681 crores between April and September 2020.
According to the RBI, while most retail consumers prefer to use electronic modes of transactions such as NEFT and RTGS, cheques are still a popular option.
While it is up to the account holder whether or not to use this service, the banks may consider making it mandatory for cheques of 5 lakh or more.
Initially, the Positive Pay System developed by the National Payments Corporation of India will be applicable for all cheques having a value of ₹50,000 and above. Under this mechanism, cheques will be processed for payment by the drawee bank based on information passed on by its customer at the time of issuance of the cheque.
Under the new system, the account holders will need to share details like the name of the payee, issue date, and amount and send it to the bank via email. When the cheque is presented to the bank for payment via CTS Clearing, the bank will compare the instrument details received against the details sent by the issuer. In case of any mismatch, the bank may review it for suitable action.
The Cheque Truncation System (CTS-2010) is expected to act as a deterrent against cheque frauds and enable the smooth processing of high-value cheques using optical / image character recognition technology. To CTS system is expected to augment customer safety and reduce instances of fraud due to tampering of cheque leaves.
RBI has observed that there are many loopholes in the present cheque clearing method and each bank formulates its own guidelines while processing high-value cheques presented in the clearing. Some banks pass the cheque having a pre-determined threshold value, only after telephonically speaking to the drawer of the cheque or any other method.
All the customers are not aware of the procedures resulting in embarrassing situations and cheque cloning fraud.
BENEFITS TO CUSTOMERS
- The electronic movement of images may eliminate the chances of loss of instruments in transit
- Reduction in the clearing cycle
- Nation-wide standard clearing system with uniform processes and practices
- No limitations of geography or jurisdiction as in the case of the existing clearing system and enable consolidation and integration of multiple clearing locations managed by different banks
- All cheques drawn on bank branches falling within the grid jurisdiction are treated and cleared as local cheques. No outstation cheque collection charges/Speed Clearing charges to be levied if the collecting bank and the paying bank are located within the jurisdiction of the same CTS grid even though they are located in different cities.
BENEFITS OF CTS TO BANKS
- Grid-based CTS provides significant cost savings
- Consolidation of clearing locations into a few grids will minimize the investment in MICR machines and the related AMC costs.
- Banks will benefit from economies of scale as the grid CTS obviates the need for establishing inward cheque processing infrastructure at various clearing locations. With the merger of many local clearinghouses with CTS grids, the settlements which were earlier spread across numerous clearing house locations have been subsumed into a single settlement, thereby significantly reducing the liquidity requirements for the banks.
- CTS other benefits are nominal cheque processing fee, reduction in operational overhead, elimination of clearing differences and reconciliation issues etc.
