Starting Jan. 1, Protect Against Cheque Fraud With Positive Pay
A customer writes on a cheque deposit slip at a bank branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Starting Jan. 1, Protect Against Cheque Fraud With Positive Pay

The banking system will implement a new cheque acceptance system from the new year which aims to minimise the number of fraudulent cheque transactions in the country.

In the positive pay mechanism, customers are required to reconfirm certain specific details about large value cheques they issue, such as the date, name of the beneficiary and the amount they are paying. This will be done through regular communication channels where customers can reach out to the banks through text messages, mobile applications, internet banking or the automated teller machine to reconfirm details.

According to guidelines issued by the Reserve Bank of India in September, the system will be available to customers on a voluntary basis for transactions worth over Rs 50,000 up to Rs 5 lakh. Banks may consider making it mandatory for transactions over Rs 5 lakh, the RBI said in its guidelines.

The regulator has asked the National Payments Corporation of India to make a facility available to banks which they can link to their cheque truncation system to enable positive pay. The cheque truncation technology allows banks to verify cheque data through a scanning system for quicker clearance.

A senior banker, closely involved in the implementation of the positive pay system, said the NPCI has made the positive pay technology available for banks since 2018, however, not all banks have used it till now. Most large banks have an internal system in place where they reconfirm transaction details with the customers when the amount crosses a certain threshold.

Smaller state-run banks are yet to sign up for the service, the banker cited earlier said on the condition of anonymity. This could be because, the banker said, they don’t want to commit to infrastructure cost associated with introducing the system, or they tend to not have as many fraudulent cheque transactions recorded on their systems.

On Tuesday, India’s largest lender State Bank of India announced on Twitter that it will be implementing the positive pay system for cheque transactions from Jan. 1. Customers will have to reconfirm their account number, cheque number, cheque amount, cheque date, payee or beneficiary name and the nature of the cheque, in case they choose to opt for positive pay.

According to CS Setty, managing director of SBI, while the usage of cheques has reduced owing to safer digital alternatives such as the National Electronic Fund Transfer and Real-Time Gross Settlement System, there are instances of fraudsters reprinting bank cheque books once they have gained access to a customer’s data. The positive pay system will likely protect the system against such transactions, he said.

“This will help us cover any liability charges associated with a fraudulent transaction and will also protect the customers against frauds. However, the customer will have to take the initiative to inform banks about their cheque details,” Setty said. “If a bank isn’t clearing a transaction for lack of the customer’s initiative, it could lead to unnecessary bouncing of cheques.”

To be sure, the relevance of cheque transactions has been coming down steadily in the banking system. As per the RBI’s monthly bulletin, the banking system reported 6.43 crore paper-based transactions on the CTS worth Rs 5,241 crore in October. A year ago, the banking system reported 8.97 crore transactions on CTS worth Rs 6,591 crore.

In comparison, the system reported 27 crore NEFT transactions worth over Rs 23,500 crore and RTGS reported 1.36 crore transactions worth over Rs 72,000 crore in October 2020.

Fraudulent transactions through cheques aren’t a big part of overall bank frauds in the country either. The banking system, according to data released by the RBI in its latest issue of Report on Trend and Progress of Banking in India, reported 202 cases of fraud worth Rs 39 crore in the year ended March 2020. In the ongoing financial year, between April and September, the system reported 76 cases worth Rs 48 crore.

Overall frauds in the banking system stood at over Rs 1.13 lakh crore during the last fiscal and Rs 64,681 crore in April-September 2020, according to the RBI report.

“The positive pay system is likely to be implemented by corporate customers more because cheques are an important instrument for them. Retail customers might find the process of reconfirming information after issuing each cheque a little troublesome,” said Bharat Panchal, chief risk officer- India, Middle East and Africa at FIS. “However, positive pay will surely result in safer transactions.”

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