RBI announces ‘Positive Pay’:
Last week, RBI announced ‘Positive Pay’, a process by which cheques can be made secure. This feature will be applicable for cheques that get cleared under the Cheque Truncation System (CTS) clearing only. Broadly, this process works as under:
(i) You intend to issue a cheque of the value of Rs.50,000 or higher, and do not want to expose the cheque to any fraud.
(ii) Your bank will provide you access to Positive Pay feature through their mobile banking or internet banking application.
(iii) You can upload the details of the cheque, like cheque number, date, payee’s name, amount, image of the front and reverse of the signed cheque, on your bank’s specified portal.
(iv) The Positive Pay feature will get activated the day after you enter the details on the portal.
(v) You hand over the cheque to the payee, in the normal course of your transaction.
(vi) The payee deposits the cheque in his/her bank account .
(vii) The payee’ss bank will present the cheque to your bank , under the standard cheque truncation (CTS) clearing process.
(viii) Your bank will cross-check the image of the cheque presented in clearing, against the details and image that you have uploaded on the bank’s portal earlier.
(ix) If the details match, your bank will honour the cheque. If not, the bank will return the cheque.
This facility gets rid of the dangers of cheque alteration and forgery and thus controls cheque frauds. The detailed modalities of this feature will be made available by RBI in due course.
Is it a Game Changer?
Positive Pay is not a new concept. When I read the announcement, I was taken back to a period around 2007, when I was managing the Fraud Prevention & Control unit at ICICI Bank. A ‘Game Changer’ Conference was organised by our Senior General Manager. This was an internal meeting of the leaders of all operations units to discuss and deliberate upon ideas that could be ‘game changers’ for the Bank.
In that meeting, I had presented ‘Positive Pay’ as a preventive measure, to control cheque frauds. I had studied the best practices of banks internationally and had liked the concept of Positive Pay that some of the banks abroad were using. It was a well established concept abroad, even in those days. I had proposed the introduction of Positive Pay for cheques, which I was convinced, could be a game changer for the Bank, at that point in time.
The presentation was a hit and the idea got accepted. There were discussions with the technology team within the Bank, to take it forward. But later on, the 2008 financial crisis happened and there was a period of cost cutting and consolidation. This idea was relegated to the back burner. Much water has flown under the bridge since then. People, including me, moved out, and new people came in. The idea got revived later and ICICI Bank did finally launch the Positive Pay service a few years ago, on its mobile banking platform. And now, with the RBI announcement, it will soon become a norm for the entire banking industry in India.
A little too late in the day?
But the moot question is, isn’t it a little too late for this feature to be introduced? Are cheques so relevant now? Do banks need to make investments in upgrading their technology to incorporate Positive Pay into their cheque clearing systems at this juncture?
Are cheques relevant in the world of RTGS, NEFT & UPI?
When was the last time you issued a cheque for making payment to someone? When was the last time you received a cheque from someone? I am sure the number of cheques that you have issued or received in the last few years have dwindled considerably. This is validated by the steep decline in the volume of cheques being processed in clearing by banks in India.
According to the report ‘Bench-marking India’s Payment Systems’, published by RBI in June 2019, “India is steadily reducing the volume of cheques relative to all other payment instruments. In 2012, cheques made up 43.5% of all India’s payment systems volumes (including all debit and credit card transactions, direct debits, credit transfers and e-Money). Six years later this had dropped to 7.3%.”
According to the RBI announcement on Positive Pay, “this initiative will cover approximately 20 per cent and 80 per cent of total cheques by volume and value, respectively….. the average value of a cheque cleared in CTS presently is Rs 82,000.”
Cheque Frauds in India:
Do we really have so many cheque frauds as to warrant this investment in Positive Pay now? According to the latest annual publication of RBI, Report on Trends and Banking in India, which was published on December 24, 2019, the number and value of such frauds is steadily declining. The total value of cheque/demand draft frauds in 2018-19 was Rs.34 crores only! Compare this to the value of the loan frauds, which was Rs.64,548 crores in the same period! Please see the graph below showing the trend in volume and value of cheque/demand draft frauds.
So, should we not focus on measures to control frauds in advances, rather than cheque frauds? Positive Pay will surely create some optics around fraud prevention in banks but will hardly impact the overall value of frauds in the banking system.
Safe way to write cheques, to prevent frauds:
Readers who have or have had an account with ICICI Bank, would be familiar with this insert which comes with their cheque books.
This was introduced by ICICI Bank on all their chequebooks, around 2006-2007. The Fraud Prevention & Control unit, along with the Central Processing Centre of the Bank , were instrumental in getting this done under the ‘Safe Banking’ initiative of the Bank. Over the years, the Bank has added QR code and other security features on the cheque leaves. Please note the one instruction in the image which mentions ‘Avoid making alterations, instead write a new cheque’. Remember, when we had introduced this, those were pre-cheque truncation days. This instruction went on to form part of the ‘CTS-2010 Standards for cheque forms’ , when cheque truncation was introduced. I quote below, the relevant para from the CTS Standards:
‘1.8 Prohibiting alterations / corrections on cheques : No changes / corrections should be carried out on the cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount (amount in figures) or legal amount (amount in words), etc., fresh cheque forms should be used by customers. This would help banks to identify and control fraudulent alterations.’
It gives me immense satisfaction that some of the early ideas or measures undertaken for prevention of frauds at the Bank, have ultimately become mandates across the banking industry.
Why issue a cheque? When you can make payments digitally?
“Why issue a cheque? When you can make payments digitally?” Said the covering note that I received from ICICI Bank, last week. Here is a picture of the covering note I received with a cheque book. Have blanked out some of the information for confidentiality reasons:
I entirely agree with the question asked. I really don’t need to issue cheques. I have been making digital fund transfers most of the time, for the last five years or so. I use cheques very rarely, only where the beneficiary insists on a cheque. I already have a cheque book with enough cheque leaves and don’t require another cheque book. So why would I request for a new cheque book?
Well, I hadn’t asked for a new cheque book! All I had asked was for a minor correction in the way my spouse’s name appeared in my account, as a joint holder. I had submitted the required documents and application form to make the corrections. And lo and behold, I got a message on my mobile that my cheque book was being processed! I called up my service manager, worried about someone fraudulently asking for a cheque book on my account. He told me that this was because of the application form I had submitted for correction in my joint account holder’s name. He went on to say that whenever there are changes in certain fields in the account, the system automatically triggers a request for a new cheque book!
I insisted that I did not want a new cheque book, since I had enough leaves in my old cheque book. He said that this was a system driven thing and he can’t cancel it. And so, I get a cheque book that I don’t want and didn’t ask for! Go figure. So much for saving the environment!
Very true. Today’s society is moving consciously towards paper less transactions as best as possible. Even small vendors are using digital payment modes. Both for the environment and their own safety.
I feel there is now a need to focus on media related frauds
Thanks Manjari, for your comments. Digital transactions are the way forward surely. But like cash, cheques will still be around for a long time, though volumes and values will decline. Our telecom and power infrastructure has to improve drastically in the hinterland for us to to be able to eliminate cheques. Even then, we will continue to have cheques and cash as a fall back to digital transactions, when there is failure of infrastructure due to disasters.
A good move, but which has come a tad too late when India is moving towards digital technology in a big way.
As a banker, I am also seeing a major shift by the people towards mobile/net banking which they were reluctant to adopt earlier. I also feel this change in the mindset is also due to the current pandemic.
Having said that, still many people especially small businessmen use cheques to a great extent. The reason I feel is due to the breathing period they get. They know that their account will not be debited immediately when they issue a cheque. So they come to the bank and deposit the money when the cheque has come in clearing. In that way they get a breather of 2 to 3 days to arrange for the funds.
I have always enjoyed reading your blogs so please do keep writing in…
Thanks Prasad. I do believe that cheques will still continue to be around in the next decade. People will continue using them, although sparingly. My angst is against introducing new features for a declining mode of transaction. Instead, if that money is invested in improving lending decisions and end-use monitoring of loans, it will go a long way in controlling loan frauds that have a larger impact on banks’ balance sheets.