In many Asian countries the cheque has never really taken off as a payment instrument. But India is one country in the region where the “cash or cheque?” query still often comes at the close of a sale. As a result, millions of cheques are processed each day in India’s large metropolitan centres.
In an age where most other things are going electronic, dealing with so many small rectangles of paper can be quite time consuming for banks. But as long as cheques remain popular, ways of dealing with them more efficiently are needed. IBM and US-based financial software firm Yojna have been using technology to target this need for US institutions for eight years, and are now applying it to the Indian market.
In Mumbai, the largest metro area in India, up to 800,000 cheques are cleared every day. In New Delhi that figure can reach 600,000 a day and in the other two large metro centres – Bangalore and Chennai – it peaks at about 400,000 a day.
“People still like to pay with cheques, although plastic is also becoming more popular,” observes IBM country manager Swarup Choudhury.
The IBM-Yojna alliance is in the final stages of implementing its joint solution at the Reserve Bank of India’s four National Clearing Centres. The solution uses hardware and middleware from IBM and imaging and integration software from Yojna.
At the heart of the solution is the mainframe hardware – the S390 main processor. IBM also provides the reader-sorters that sort the cheques using MICR (magnetic ink character recognition). This system can print out various schedules for each bank, print out the clearing sheets and send those back to the relevent banks.
Sitting alongside this hardware is Yojna’s ACCORD product family which can store, retrieve and electronically distribute the images of cheques. It also allows the financial institutions to provide their business customers with these same electronic cheque facilities, and integration with online cash management, balance sheet reporting and transaction generation facilities. To do this, Yojna utilizes Lotus Notes and MQ Series messaging middleware as well as the Tivoli middleware for network management.
“At the moment the options are delivery of a CD-ROM, which can be sent to the bank, viewed and downloaded onto their own system,” says Choudhury. “The benefit of this is they can look on their statements and records, click on an entry and actually see the instrument underlying the transaction.”
This kind of efficiency not only saves time, but also increases fraud detection. Previously if a customer, or the bank, had an enquiry about a particular cheque it could take weeks to search through the bundles of cheques filed in the archives. With this system it is almost instantaneous and can be delivered for examination over the internet.
“For the rejected cheque instruments – overvalued or whatever, this facility gives them easy access to respond to customer inquiries. But it also helps them in risk management because large cheques, that are lost, misplaced or whatever, have a risk implication.”
Liquidity boost
IBM says it is finding plenty of interest in its technology hardware and services from all sectors of the finance industry in India. As an example, it gives the work it is doing for Vysya Bank, which it claims is perhaps one of the biggest core banking implementations in the region. “Other than this we’re working closely on internet banking, trade finance, treasury and customer relationship management (CRM). These are areas that are building up in this country,” says Choudhury.
Both banking and non-banking financial institutions are evaluating and putting in technology plans, looking at the entire architecture of their business. The major decision they are faced with is whether they want to keep the legacy systems they have today or move towards integrated transaction processing – a core banking system where data can be seamlessly shared between all aspects of the business.
According to Choudhury there are great benefits of this e-transformation in terms of unleashing liquidity in the system. “Funds lying unreconciled in branches in remote areas can be pooled together with a pooling cash concentration method. They could actually get liquidity centralised where they can invest it in the money market. But currently there are leakages of revenue for the banking system,” he says.
