New Delhi: As per the latest figures revealed by RBI, bank frauds are on the rise in India. In fact, they have almost doubled in last one year. Bank frauds are mainly caused due to a wide array of activities ranging from cheque fraud to fraudulent loans etc. In this scenario, though each financial institution develops their own mechanism to prevent frauds, small ones often miss out due to lack of information, regulator mandatory requirement or technical know-how. In this regard, often the regulator steps in with some defined processes based on historical data and information to design rules and instructions to be followed by each financial entity.
Cheques have been one of the most traditional forms of payment system used commonly by individuals and entities. Cheque frauds are however one of the most common forms of payment frauds that can be seen in the banks. It results in strain on the system and resources and leads to lack in faith of the customers on the banking platform. In modus operandi, it involves use of highly sophisticated malpractice such as altering security features of the cheques or paper being non- genuine, often missed by the human eye. In order to prevent this, RBI came up with enhanced security features under CTS-2010 to verify the genuinity of the cheque leaf like watermarks, logo, pantographic image, serial number, account number etc.
The Cheque Truncation System (CTS) which is image based clearing system introduced by RBI in 2010, covers pan-India. If we look at retail payments, 2 percent by volume and 15 percent by value is being covered by CTS; the average value per cheque being ?82,000. As per the policy statement issued on August 6, 2020, RBI said, "The CTS-2010 standard specifying minimum security features on cheque leaves acts as a deterrent against cheque frauds, while standardisation of field placements on cheque forms enables straight through-processing by use of optical/image character”. This makes the whole process less time consuming, efficient and also risk free.
What is Positive Pay system?
Moving forward from the image based clearing system, ‘Positive pay’ is a fraud detection mechanism by which RBI aims to protect the customers
against frauds occurring on account of tampering of cheque leaves. RBI ensures to secure cheque payment via Positive Pay by adding an extra layer of security to the instrument. It would enable the customers to provide specific information related to the cheque to their bankers who would then process the cheque based on authenticated customer information. This shall come into effect from January 1, 2021. It shall further augment customer safety in cheque payments.
How does the mechanism work?
In concept, the system is simple. The process calls for re-confirmation of key details which may be needed for payments beyond ? 50,000. This re-confirmation would involve key details of large value cheques (like date of issue, name of the person/organisation to whom the cheque is issued, amount, cheque number etc.) which the issuer shall submit electronically, through channels like SMS, mobile app, internet banking, ATM, etc. to the Drawee bank, details of which shall be cross checked with the presented cheque by CTS before making any payment. Checks such as these will ensure banks process genuine cheques only. Any discrepancy will be flagged by CTS to the Drawee bank and presenting bank, who would take measures to redress.
It would be at the discretion of the customer whether or not to avail this facility. This will be developed by National Payments Corporation of India (NPCI), who shall make it available in CTS. Banks shall enable this facility for all account holder issuing cheques above ? 50,000. In view of the frauds of high value nature occurring in the banks, banks may consider making this mandatory for amount above ? 5.00 lacs. Thus a dual authentication is carried out by the banks - once by matching the signatures and the second by cross-verifying the details with the one provided by the issuer.
Why should one opt for Positive Pay?
Positive Pay system works like insurance for the customers. Usually when a fraudulent transaction happens through cheques, it is difficult to put the onus either on the customer or the bank. If the cheque leaf and signature are genuine, banks would not take the onus for any fraudulent transaction arising out of alteration in cheque by the beneficiary or other party and would call it as customer negligence. With this system, the customer would not be held responsible if the details have been shared by him and the bank has still processed the cheque without verifying or cross-checking with it.
Presently, banks such as ICICI and IDBI, have installed a mechanism similar to ‘Positive Pay’ to deal with frauds in cheque payment. However, a step from the regulator would force the smaller banks to implement into their system and make it a protocol. This is a welcome step by RBI for not just the customers but also the banks for they in turn will be safeguarded by this extra layer of security. RBI has also mandated that the banks must advertise and propagate and make the general public aware of the Positive Pay system.
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