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The number of times the words “should” and “charge” appear in this article titled “RBI WANTS TO DISCOURAGE USE OF CHEQUES” got me wondering if “negative reinforcement” is seen as the only way to wean people away from their time-worn habit of using cheques and move them to electronic payments. For the uninitiated, RBI, or Reserve Bank of India, is India’s central bank cum regulator of the Indian banking industry.

Instead of solely contemplating measures to ban cheques for multifarious transactions and levying a charge for permitting their use in the others, I wish RBI and the banking industry in India focused their efforts on finding ways to directly stimulate the use of electronic payments. With that approach, I’m sure that they’d accomplish the desired shift from cheque to electronic payments a lot faster and in a manner that is more agreeable with payers and payees, who are the two most important stakeholders in a payment.

While it’s tempting to agree with the article’s assertion, “with electronic payments catching up, cheque usage will come down”, the growth in electronic payments is not going to happen by accident. Individuals and corporates have been accustomed to using cheques for a long, long time and will switch to electronic payments only if they find a compelling reason to do so. IMHO, the banking industry should step up to the plate and provide that reason.

Based on my experience of using cheques and electronic payments in both my personal and professional life for several years, let me suggest the following “positive reinforcements” for bolstering the adoption of electronic payments by retail and corporate banking customers alike:

  1. REALTIME BENEFICIARY CONFIRMATION. While initiating an NEFT (India’s version of ACH payment) or RTGS payment, as soon as the payer enters the beneficiary’s bank account details in the fund transfer screen, and before submitting the payment, the Internet Banking portal should provide a confirmation of the name of the beneficiary in realtime. This will assure payers that, when they hit the submit button, their money would reach the right party. Just as people buy from people and not salesperson codes, people pay people and not account numbers. Cheques recognize this basic payer behavior and have provided payers with the assurance that they’re indeed paying the right parties by letting cheques be drawn on the beneficiary’s name. With ePayments, banks are expecting people to change their behavior by asking them to pay to account numbers. Worse still, instead of providing an incentive to ease in the newly demanded behavior, banks have been doing their best to scare payers off ePayments by displaying intimidating messages on their websites. For example, “Credit will be based solely on the beneficiary account number information; the beneficiary’s name will not be used. We will not be responsible for funds transferred to an unintended recipient”. Not surprisingly, people prefer to cling to the comfort of cheques.
  2. LONG MEMO FIELD. The memo / description field on electronic payment forms should be long enough to accommodate the narration that a payer would need / like to use in order to clearly communicate the purpose of the payment to the payee. Take, for example, an individual used to making a health insurance premium payment by cheque. The insurance company typically asks him to write something like “Health Insurance Premium for FY2012-13 for John Doe & Family” on the reverse of the cheque. When John Doe goes electronic, he might find his bank stopping his narration midway. When I tried this on my bank’s NEFT form, I wasn’t able to get past “Health Insurance Pre” in its transfer description field. Such truncations are the result of naivete in screen and / or database design. Abbreviations – like the one recommended by one of my banks – could prove disastrous to payers. By truncating narrations, policyholders like John Doe might get into trouble and find themselves without cover despite making their premium payments on time just because their insurers had no clue what the payments were meant for and failed to apply them to their policies.
  3. COOLING PERIOD. Cheques support revocability – the ability to cancel a payment once made – via the “Stop Cheque” facility. On the other hand, most forms of electronic payments don’t. In fact, some might argue that irrevocability is one of the major strengths of ePayments. While I won’t dispute that, there are genuine reasons why a payer might need to cancel a payment after the fact. Expecting the equivalent of “stop cheque” in an electronic payment might be sacrilegious. That said, it shouldn’t be very hard for banks to introduce a “cooling period” within which payers can withdraw ePayments that they’ve already submitted (This is very different from the 24 hour cooling period imposed by a few banks while adding a payee, a step that I’d called out in Height Of eBanking Irony as running counter to the basic promise of the immediacy of electronic payments). As a matter of fact, the recently enacted Dodd Frank 1073 rule mandates such a cooling period – of 30 minutes – for all electronic cross-border payments originating inside the USA.

Raising transfer limits and modifying the authorization process are two more ways that could help increase the adoption of electronic payments – more on them in a follow-up post.

While each bank might need to conduct a detailed study to evaluate the feasibility of implementing the above measures in the context of its own business processes and IT landscape, I hope the above list serves as a good starting point.

Ketharaman Swaminathan On July - 12 - 2013

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BFSI, eCommerce, Uncategorized

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  • sketharaman

    UPDATE dated 15-Feb-2016: Apropos #2, here’s a real-life example of why longer memo fields will help:

    One of our customers used to pay mobile phone bills via NEFT, India’s equivalent of ACH. Month after month, thier TELCO would discontinue service citing non receipt of payment. Problem was with the NEFT screen. The memo field to narrate the purpose of payment was very short. Sender was not able to squeeze in account #, invoice # and date. Therefore, when money landed in the TELCO’s bank account, it was unable to match the receipt with the outstanding invoice, hence invoice continued to show as outstanding. The company was forced to discontinue NEFT payments. It does not have a corporate credit card. Left with no other choice, it now pays its bills with cash.

  • sketharaman

    UPDATE DATED 13 SEPTEMBER 2017:

    Kudos to RaboBank of the Netherlands for providing #1 REALTIME BENEFICIARY CONFIRMATION to its customers.

    =====

    Rabobank introduces IBAN-Name Check

    https://www.rabobank.com/en/press/search/2017/20170905_ibannaamcheck.html

    =====

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