| Over the last decade, Indian banking has evolved | | | | successful, users need to support the system as it |
| over the traditional way of banking with use of | | | | changes the traditional way of working |
| innovative technologies. As a result, user experience | | | | 4. Customer acceptance - in electronic cheque |
| has improved significantly. It is widely acknowledged | | | | processing, merchants/customers need not visit the |
| by industry experts that technology can play a larger | | | | bank to deposit the cheque but they can scan their |
| role in Indian banking, and one area that certainly | | | | cheque from their desktop and submit for bank |
| craves for attention is cheque processing. | | | | clearing. This calls for tremendous change in mindset |
| Though under the Reserve Bank of India | | | | among customers to feel secure to do transactions |
| (RBI) guidance, the e-banking systems has been | | | | over electronic media |
| implemented by banks that allows end-users to take | | | | Some Implementation Guidelines |
| advantage of online fund transfer, RTGS, e-cheques | | | | 1. Banks need to evaluate their existing system, as |
| etc, India continues to write lot of cheques every | | | | they would have already invested good amount of |
| day. People still believe in the physical instrument | | | | money into it. So the solution they would like to |
| rather than on electronic media. The estimated | | | | implement should be able to integrate with the |
| cheques written in India are around 1.2 billion per year. | | | | existing system as well as other heterogeneous |
| This includes local, intercity, interstate, and intra state | | | | systems with ease |
| cheques. If we consider the whole cheque clearing | | | | 2. Security of the system should be of prime |
| process, it is obvious that these are not very | | | | importance |
| effective. It takes about 15 days for inter-city | | | | 3. The new solution should be able to scale and meet |
| cheque clearance. Apart from time consuming | | | | the increasing demands from the customers and |
| process, there are overhead costs for transportation | | | | handle the load |
| and storage. In short, poor cheque clearing cycle | | | | 4. Should be able to provide software as service to |
| reduces operational efficiency. | | | | customers and related institutions |
| The Central Banks of many countries have exploited | | | | 5. All systems are good only if people accept and |
| the technological innovations today and implemented | | | | ready to work with it. Hence, having a governance |
| the electronic transmission of images rather than the | | | | model in place is important and the current team |
| physical transportation of cheques for clearing. For | | | | should be enthusiastic enough to accept the new |
| example, the US has already implemented Check | | | | solution. Most companies forget this aspect, which |
| Clearing for the 21st Century Act (or Check 21 Act). | | | | leads to failure of the system |
| In India, the RBI has mandated the use of pilot | | | | Beneficiaries of Cheque Truncation |
| Cheque Truncation Project in the National Capital | | | | 1. Banks - have a simplified system to collect all the |
| Region. More than 10 banks are already processing | | | | information from their merchants/branches, |
| their cheques through the system now. Based on the | | | | consolidate, process them and submit for clearance |
| experience gathered, it would consider extending the | | | | 2. Customers of banks - can electronically deposit |
| coverage to other centers. | | | | large number of cheques without fear of loss in |
| Cheque Truncation is the process of stopping the | | | | transit. For example, LIC collects thousands of |
| flow of the physical cheque issued by a drawer to | | | | cheques every day can deposit the cheque from its |
| the drawee branch. The physical instrument will be | | | | office rather than going and dropping cheques in |
| truncated at some point en-route to the drawee | | | | multiple banks |
| branch and an electronic image of the cheque would | | | | 3. Bank's Branches - teller can directly scan and |
| be sent to the drawee branch along with the | | | | deposit the cheque to its head office for clearing |
| relevant information like the MICR fields, date of | | | | rather than transporting the cheque to the HO |
| presentation, presenting banks etc. | | | | 4. Check processing centers - streamline back office |
| To wish away cheques were simply not possible so, | | | | operations for the banks with greater audit and |
| the focus is on improving the efficiency of the | | | | tracking |
| Cheque Clearing Cycle. Cheque Truncation is the | | | | 5. Users of the system - can track the status from |
| alternative. Contrary to perceptions, Cheque | | | | their desktop and plan their business or personal goals |
| Truncation is a more secure system than the current | | | | accordingly |
| exchange of physical documents in which the cheque | | | | Thus, with the implementation of cheque truncation |
| moves from one point to another, thus, not only | | | | solution, the need to move the physical instrument |
| creating delays but inconvenience to the customer in | | | | across branches would not be required, except in |
| case the instrument is lost in transit or manipulated | | | | exceptional circumstances. This would effectively |
| during the clearing cycle. | | | | reduce the time required for payment of cheques, |
| Some of the challenges in implementing Cheque | | | | the associated cost of transit and delay in processing, |
| Truncation Solution are: | | | | etc., thus speeding up the process of collection or |
| 1. Integration with existing large banking systems - as | | | | realization of the cheques. |
| banks have already invested on legacy system, it is | | | | Major advantages of Cheque Truncation |
| important that the new system seamlessly integrate | | | | |
| with the existing system | | | | Cheque Truncation thus is an important efficiency |
| 2. Security - In any financial software, security is of | | | | enhancement initiative in the Payments Systems area |
| prime importance. Hence, information transmitted | | | | that will help financial institutions in India to increase |
| over electronic media should be secure enough | | | | their top and bottom line and above all ultimate |
| 3. Changing the current workflow - There is often | | | | customer satisfaction. |
| resistance to change. For any new system to be | | | | |