“Remember that failure is an event, not a person.” – Zig Ziglar
(This is a continuation of a series first published in July and August 2014)
The MICR cheque book
In 1959 a standard for machine-readable characters (MICR) was agreed and patented in the U.S. for use with cheques. This opened the way for the first automated reader/sorting machines for clearing cheques. As automation increased, the following years saw a dramatic change in the way in which cheques were handled and processed.
Cheque volumes continued to grow; in the late 20th century, cheques were the most popular non-cash method for making payments, with billions of them processed each year. Most countries saw cheque volumes peak in the late 1980s or early 1990s, after which electronic payment methods became more popular and the use of cheques declined.
From the mid-1990s, many countries enacted laws to allow for cheque truncation, in which a physical cheque is converted into electronic form for transmission to the paying bank or clearing-house. This eliminates the cumbersome physical presentation and saves time and processing costs.
In 2002, the Eurocheque system was phased out and replaced with domestic checking systems. Old eurocheques could still be used, however they were now processed by national checking systems. At that time, a number of countries such as Germany took the opportunity to phase out the use of cheques altogether. As of 2010, many countries have either phased out the use of cheques altogether or signaled that they would do so in the future.
THE GHANAIAN SCENE
Coming home to Ghana, we have also evolved following closely in the footsteps of banking in the western world. We did not re-invent the wheel. Let us examine the current cheque processing.
The Cheque Truncation system
In 2009, The Ghana Interbank Payment and Settlement System (GHIPS) launched a new automated system which enhanced the clearing of cheque payments. The system known as Cheque Codeline Clearing with Cheque Truncation System has eliminated the previous manual paper credit clearing system. The benefits are:
- Cost savings from reducing/eliminating paper transportation.
- Reduction in the cheque clearing cycle.
- Reduction of errors (with associated cost savings) through reducing/eliminating manual steps and “re-handling”/reconciling of paper
- Simplified returns process with complete electronic transaction history available and no dependency on physical documents.
- It also reduces the scope for clearing related frauds as manual intervention is virtually eliminated.
The On-line cheque deposit system
In the absence of eliminating cheques the latest measure is the introduction of an on-line system that enables customers deposit cheques into their account remotely from their offices without visiting the bank. It is an easy three-step process of scanning, verifying, and depositing cheques remotely from their own premises anywhere in the country.
The process begins with a confirmation of the customer’s identity as a valid customer who has been profiled on the system before scanning of cheque is allowed. Then an image quality is checked online and the scanned cheque, a receipt similar to a cheque deposit slip is generated and the cheque is then submitted to the automated clearing house for processing.
Other benefits of the system are that it provides customers with greater convenience of when to deposit cheques, protects and encrypts information, makes balancing fast and easy, provides quick cheque image retrieval, and reduces paper handling errors in the comfort of a customer’s office.
Risks in modern cheque usage
The cheque has indeed gone through a long journey over the centuries. Did you notice that the principles around its usage has not changed? On the other hand, the cheque in recent years is now becoming a dangerous weapon when it falls into the wrong hands or mistakenly honoured in favour of the accounts of fraudsters! As banks re-design new products over the years, the speed of processing and payment of cheques is also fraught with its own problems:
- Difficulty sometimes faced by paying banks when the images of the scanned cheques are unclear.
- The difficulty in detecting Counterfeit and cloned cheques, resulting in payment to fraudsters.
- The centralized nature of the payment reduces the contacts with the originating branch and results in the difficulty in monitoring of cheques issued by customers.
As cheques become easier to process, the compliance and regulations around its usage is also being strengthened. Suspicious transactions are referred to the Financial Intelligence Centre and EOCO for investigations. Do you know the emerging practice that banks are adopting before payment of cheques, especially those received through the clearing house? Telephone calls to confirm, pre-advices and what have you. These are unfortunately not covered by law but only adds as a soft comfort. Even with this, do you know that calls for confirmation are diverted by the criminals with the use of technology?
All these show that until the principles in banking are changed, many innovations should use history as a reference point and put mitigating measures to reduce any anticipated risks in modern banking. Competition is good and makes banking refreshing.
Next week, we shall look at the various banking crises over the centuries, the causes of bank failures. This should make us pause and reflect about the way we are doing things. Are we re-inventing the wheel? What has been the issues involved in the run on banks by customers, and the eventual bank collapses? How we can learn from the experiences through history and make new trends less risky. I don’t claim to have the answers. It is just a quiet and gentle reminder to you that “look before you leap.”
To be continued.
ABOUT THE AUTHOR
Alberta Quarcoopome is a Fellow of the Institute of Bankers, and CEO of ALKAN Business Consult Ltd. She is the Author of Three books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story” and “The Modern Branch Manager’s Companion”. She uses her experience and practical case studies, training young bankers in operational risk management, sales, customer service, banking operations and fraud.