The Positive Pay System has been implemented by the Reserve Bank of India for all modes of cheque payments (cash, transfer, and clearing) with effect from January 1, 2021. This automated cash-management service is used by financial institutions to deter cheque fraud and protect bank account holders.
The Positive Pay System (PPS) has been developed by the National Payments Corporation of India (NPCI), in a move to protect bank customers against fraud through forged signatures on cheques. The RBI introduced PPS in its monetary policy review on August 6, 2020, and made it effective on January 1, 2021. The NPCI developed the facility to make PPS functional in CTS, making it available to participating banks. The NPCI collects all the PPS confirmation details from the member banks and stores them in the CTS clearing database. Banks, in turn, enable all account holders to issue cheques for amounts of ₹50,000 and above.
Forging of signatures on cheques and misappropriation of funds of account holders had been the biggest concern for banks. Under PPS, a person issuing a cheque of Rs 50,000 or above, submits certain essential details of that cheque like date, name of the beneficiary/payee amount, etc. to the drawee bank. These details can be submitted electronically by SMS, mobile app, internet banking, ATM, etc. The submitted details are used to cross-check before honoring the cheque to avoid any inconsistency and to reconfirm the key details of the large value cheque. Any cheque that may not meet the required verification criteria is sent back to the issuer for examination.
Another important feature is that only those cheques that are compliant with PPS will be accepted under the dispute resolution mechanism at the CTS grids. Others will not be entertained. Banks seeking to use the RBI’s dispute resolution mechanism must opt for PPS.
PPS is provided by all banks free of charge. According to RBI, though availing the PPS facility is at the discretion of the account holder, banks may consider making it mandatory in cases of cheque values of ₹5 lakh and above. Some of the benefits of PPS for banks are -
Cheques are becoming less popular as digital payment options such as NEFT and RTGS gain popularity. That said, a large section of customers still use cheques as their primary mode of payment. Hence, PPS will add an extra layer of security. PPS will intimate the bank with information about high-value transactions even before the beneficiary presents the cheque for payment. This will make it easier for the clearing bank to detect any discrepancies.
The RBI has informed banks to create adequate awareness among their customers about PPS. Banks, on their part, will have to invest in technology to make a positive impact with "Positive Pay" and offer the best customer experience, which will be a crucial factor in bringing about a wave of change in payment preferences in the future.
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