Under Positive Pay, after an account holder issues a cheque to anyone, he or she will share the cheque details with the bank. Before making payment against the cheque, banks will match the details available on the cheque with those that the issuer has provided.
To make cheques safer, the Reserve Bank of India (RBI) has asked banks to implement a system called Positive Pay from January 2021. The system adds an extra layer of security to reduce cheque-related frauds.
“The system acts against cheque frauds where the cheque leaf and signature are genuine but a fraudster alters the cheque detail," said Bharat Panchal, chief risk officer–India, Middle East and Africa, FIS, a technology company that focuses on the financial services sector.
In concept, the system is simple. After an account holder issues a cheque to anyone, he owill share the cheque details with the bank. Before making payment against the cheque, banks will match the details available on the cheque with those that the issuer has provided. Such checks will ensure banks process genuine cheques only.
RBI has left it to banks to make the system mandatory or leave it to the discretion of the account holder to opt for Positive Pay mechanism. “While availing of this facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheques for amounts of ₹5 lakh and above," states RBI’s notification.
How it will work
Some banks such as IDBI Bank have already started encouraging customers to use this feature. According to the bank’s website, customers can update details of cheques via IDBI Bank GO Mobile+ app.
National Payments Corporation of India (NPCI) is developing the Positive Pay facility and will make it available to banks. According to the RBI’s notification, the issuer of the cheque will submit details electronically, through channels like SMS, mobile app, internet banking, ATM, and so on.
The customer will need to enter details such as name of the person or the organisation to whom the cheque is issued, the amount, cheque number and the date of issue.
Once the customer shares the details, the bank’s system will upload the data into the centralized data system of Positive Pay. On receiving the cheque, the bank will verify the details from the central database. Banks will make the payment if the details which the account holder has provided matches with those on the cheque.
In case of a mismatch, the bank will reject the cheque. The system allows banks to authenticate the cheque twice–once by matching the signature of the issuer and then by cross-checking details.
Banks also embed several security features in the cheque using which they can verify whether the cheque leaf is genuine or not. Some of them include watermarks, logo, pantographic image, serial number, account number, and there could be features that are not visible under normal light.
Puts onus on banks
The key advantage of the system is fraud prevention. Some large banks have been using their own system to verify such details. With the regulator implementing it, smaller banks can also now benefit from it.
“Positive Pay works as insurance for customers. If an account holder shares details of the issued cheque and his bank still clears a fraudulent cheque, the onus is on the bank and not on the customer," said Panchal.
Typically, when a fraudulent transaction happens through cheques, it is difficult to put the onus either on customers or banks. Banks don’t take the onus if the signature and cheque leaf are genuine. Banks put the onus on customers if a beneficiary alters the cheque calling it the account holder’s negligence.
Even if your bank doesn’t make Positive Pay system mandatory, do opt for it to avoid falling victim to banking frauds.
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