Cheque Truncation

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IBM Business Consulting Services

Indian Cheque
Truncation Initiative
Key challenges for Indian Banks
Ravi Trivedy
IBM Business Consulting Services

deeper
deeper

© Copyright IBM Corporation 2003

IBM Business Consulting Services

The Indian Cheque Scenario – an IBM Point-of-View

Cheque volumes will continue to increase for the next
5-7 years - All parties involved have strong reasons to
continue to promote check usage
Banks - significant revenue flows are tied to the use of checks Slow consumer adoption of electronic payments - cheques are
free + Perception of safety
Merchants, Corporates, Governments, and Non Banking
Financial Institutions - due to lack of cheap, convenient
alternatives and because many accounts payable and
receivable systems are designed around checks.

© Copyright IBM Corporation 2003

IBM Business Consulting Services

Image based processing of cheques in India present several
challenges – which all add up to the cost for the banking industry

Geographical spread & volumes impact speed of
physical movement of paper (specially inter-city)
Multiple languages & scripts
Multiple handling due to current processes in
branches – high rejects in an imaging process
Legal & Regulatory issues
Lack of Centralized Banking systems in many banks
to enable STP
Potential for fraud/counterfeit cheques increases

© Copyright IBM Corporation 2003

IBM Business Consulting Services

The Truncation initiative will have a major impact on Payment Operations – some key recommendations

Indian Model - Truncation at presenting Bank
Big Bang approach – mandatory cutover for ALL Branches
Each Bank to decide it’s own model – Truncation at Branch or Service Branch or Outsourced

Recommendations for Banks
Understand volumes, current operations
Develop strategy & optimized operations architecture in a
truncation environment
Define new processes (focus on mitigating operational risk)
Re-define clearing operations & organization

© Copyright IBM Corporation 2003

IBM Business Consulting Services

RBI’s Working Committee on Cheque Truncation has recommended truncation at the presenting bank itself, to maximize efficiency PRESENTING BANK

Big Branches

DRAWEE BANK
Core
Core
Banking
Banking
System
System

Branch Capture

Data and Image
One Pass readers for MICR
Data, Greyscale & Bitonal
Images Front & Back
UID assigned
At Teller/Behind Teller
Real-time/Batch

Intra-Branch
Intra-Branch
Cheque Clearing
Cheque Clearing
Clearing
House System
House System
House
IMAGE & MICR
ARCHIVAL

PKI
enabled

CLEARING
CLEARING
CLEARING
HOUSE
HOUSE
SYSTEM
SYSTEM
SYSTEM

IMAGE & MICR
ARCHIVAL
3 Months + 8 Years

Browser based
access to images
for Banks &
Customers

Images,
MICR,UID2

Clearing House Interface

Clearing House Interface

Service Branch
Service Branch
Or
Or
Or
Outsourced Service Center
Outsourced Service Center
Outsourced

Small Branches

Images,
MICR,UID

MIS
MIS

Signature
Signature
Verification
Verification

Customer
Customer
Statements
Statements

IMAGE & MICR
ARCHIVAL
© Copyright IBM Corporation 2003

IBM Business Consulting Services

Reduced costs, improved customer service and increased flexibility will drive each Bank’s imaging decision

Value realization will differ from Bank to Bank
New offers of value
to customers

Reduced costs from
re-engineered check
exchange practices

REALIZED
VALUE

Reduced costs via
productivity enhancements
and fraud reduction

Near-term customer
service enhancement

2005

2006

2007

TIME

2008

2009

2010
© Copyright IBM Corporation 2003

IBM Business Consulting Services

With RTGS and Cheque truncation, Banks will potentially lose a large income leverage

The truncation initiative will re-define business models
Loss of float
Additional cost of infrastructure & Operations

Recommendation for Banks...
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