Positive Pay System: Know how it prevents cheque fraud and secures high-value transactions

As scams grow more sophisticated, at least you have one less thing to worry about—cheque fraud. The Reserve Bank of India (RBI) implemented the Positive Pay System (PPS) back in 2021, which has emerged as a powerful tool to fight cheque fraud in India, especially for large-value transactions. The PPS adds an extra layer of security, ensuring every large transaction is verified before processing.

What is the Positive Pay System?

The Positive Pay System (PPS) is a fraud prevention mechanism that requires account holders issuing cheques of ₹50,000 or more to share key details with their bank before the cheque is processed. These details include the cheque number, date, amount, and payee name.

When the cheque is presented before clearing, the bank cross-checks the submitted details with the physical cheque. If there's any mismatch, the transaction is flagged for further verification, thereby avoiding cheque-based fraud.

Introduced by the RBI in 2021, PPS act as a critical safety net, preventing unauthorised transactions and enhancing trust in payments made via cheques.

Recent developments: Compulsory for high-value checks

Currently, PPS is mandatory for cheques of ₹5 lakh and above processed through the Cheque Truncation System (CTS).

Earlier, effective October 1, 2024, banks in India mandated the use of PPS for cheques of ₹2 lakh and above presented in the CTS and for cheques of ₹5 lakh and above for transfer transactions.

If customers do not submit PPS mandates for these high-value cheques, the bank will return the cheque with the reason: "Advice not received." ​

How does PPS work?

Issuing a cheque with PPS is straightforward. Cheque issuers are required to submit their cheque details—check number, date, amount and payee name—at least 24 hours prior to presenting the cheque for clearing. This can be done through internet banking or manual submission at the counters.

For government segment account holders, there is a facility for sending scanned documents via e-mail for convenience. The banks properly cross-check this information with the given cheque upon presentation. Even a minor discrepancy in the cheque calls for a verification process to confirm authenticity.

Benefits of a Positive Pay System

PPS not only increases security but also simplifies cheque clearance and processing. By eliminating physical movement and manual verification, it increases efficiency in banking operations. It also empowers customers to object to fraudulent payments and raise and resolve other issues or discrepancies quickly.

As India makes progress towards a safer and more technology-driven financial system, PPS is a significant step towards preventing cheque fraud, especially for large sums of money.

Conclusion

PPS marks a significant step in enhancing transaction security in India. The RBI's push to expand PPS to lower-value cheques in the future could further strengthen financial safety across the country.

Banks and RBI are also working towards enhancing customer awareness and technology and streamlining the use of PPS. Moving forward. expanding PPS to cover lower denomination cheques could offer even greater protection in financial transactions in the country.