The Reserve Bank of India (RBI) introduced ‘Positive Payment System' for monetary transactions through cheques a few months ago. This directive by RBI is issued under Section 18 of Payment and Settlement Systems Act, 2007, Act 51 of 2007. RBI Governor Shaktikanta Das announced this in August 2020 from the point of view of keeping the issue of consumer safety in order and to lower the cases of cheque payments related frauds and abuses. The banks in light to this are advised to create requisite spread of awareness among their consumers on features of Positive Pay System through various mediums like SMS alerts, display in branches, ATMs as well as through their respective internet banking and online websites. Not only PPS safeguards the customers from fraudulent cases but also enhances the overall visibility of cheque activities, allowing a greater transparency over business finances.
Positive Pay System (PPS) is essentially a measure designed to detect fraudulent activity on monetary transactions. It is done by reconfirming and matching certain details presented by the payee for clearing, like the cheque number, cheque date, payee name, account number, amount, and other details comparing it with a list of previous cheques issued and authorized by the issuer. Under this new regulatory measure re-confirmation of the key details shall be required for payments beyond INR 50,000/-. While availing PPS is at the discretion of the account holder, several banks may consider making it involuntary in cheques for amounts of INR 5,00,000/- and above.
Under the Positive pay system, the issuer of the cheque submits certain minimum but key details like date, name of the beneficiary, amount to be paid through electronic channels like SMS, mobile app, internet banking, ATM, etc. to the drawee bank. These particulars that are provided by the issuer will then be crosschecked with the cheque truncation system (CTS).
If any discrepancy is detected by the CTS, it is immediately flagged to the drawee bank and presenting bank to further take redressal measures. Only those cheques that are in compliance with above instructions will be accepted under dispute resolution mechanism at the CTS grids. Member banks shall enact similar arrangements for cheques collected and authorized outside CTS as well.
Currently the Cheque Truncation System (CTS) for clearing cheques is serviceable in pan-India and covers from 2 to 15 per cent of total retail payments in terms of volume and value respectively, while the average value of a cheque cleared in CTS at present is INR 82,000/-. The RBI has advised the banks to ensure necessary awareness generation among their customers on features of positive pay system through all virtual platforms like SMS alerts, display in branches, ATMs as well as through their e-banking and online websites.
Positive Pay is going to benefit both the beneficiary and the issuer. It will acts as insurance for cheques. For the issuer it will benefit in the terms that no chances of fraudulent cheques that can be encashed out of issuer’s account will be possible. For the beneficiary, the benefit remains that the cheques handed out to him will mostly be honoured. However a similar concept of ‘certified cheque’ was introduced about 3 decades back before digital technology was not a part of the Indian banking landscape.
Under the certified cheque policy, anyone who issued a cheque was certified by the banks that there is adequate money in the customer’s bank account and, therefore the cheque will get honoured. This provided security to beneficiary that payment will get honoured and therefore one does not have to insist on a pay order or demand draft.
The drawee bank used to earmark the amount in the account of the issuer and then authorize the cheque. This was carried in the times when the cheques used to travel physically for clearing purposes. However, today with the cheque truncation system there is absolutely no need for the cheques to be physically carried for clearance. Cheque images are enough to travel digitally in the under CTS.
Positive Pay System will ensure a positive effect by giving that added protection to India’s digital payment aspirations. Apart from the primary benefit of reducing check fraud, there are some institutions offering the payee added benefits for using positive pay. These include the option to add another layer of review in the form of the payee name, which appears on the check but is not standard to the system.
Some other added benefits include the ability for the teller to check the list at the point of deposit, saving the time it takes to scan and verify the check, immediate delivery via Internet of potentially fraudulent items to the client company, the availability of regular reports from the bank, auto-generate account payable workflows thus minimizing disruptions of business operations, and simplifying account reconciliation.