Internet And Banking

Updated: Sep 20 2003, 05:30am hrs
Internet has been constantly penetrating the lives of common men and the same has been revolutionised over the years. It holds within its ambit unfathomable avenues, innumerable have been discovered and infinite remain to be explored. The opportunities internet could bring in the future are enormous, from communication to entertainment. Banking services is one sector that has enormous potential and it is already knocking down the traditional means of doing business. The latest to join the league is the electronic means of payment. With the invasion of hand held computers and instant access to internet, electronic cheques might even replace the preferred way of payment, besides cash and plastic. As the volume of payments continues to rise, the cost to banks and business and ultimately to customers is also increasing. Various other methods of payment have been considered and tried, but nothing seems to be as simple and efficient as an electronic cheque.

The paper cheque has long been established as the main instrument of payment. It is used as a means of paying bills between individuals and organisations, between businesses, and between individuals. In Singapore last year, the banks cleared over $600 billion worth of cheques. In the United States, the banks handled more than 70 billion cheques and in Mumbai and Delhi approximately 1,400,000 cheques are cleared every day.

Electronic cheque is an electronic end-to-end payment instrument that works just like a paper cheque and is eligible for legal treatment as a paper cheque. It is modelled on the lines of a paper cheque, except that it is initiated electronically, uses digital signature for signing and endorsing and digital certificates to authenticate the payers bank and the bank account. Following the technological advancement globally, the Negotiable Instruments Act, 1881 (the Act) has been amended to incorporate e-commerce aspects.

The amendment has brought in two concepts of digital cheques. One is a mirror image of a cheque digitally signed. Second is the concept of truncated cheque where the physical cheque carrying a physical signature of the drawer is killed and replaced with an image of the signed cheque. Power to create a truncated cheque lies with the clearing house or by the paying or collecting banks.

Accordingly, Section 6 of the Act has been amended to include electronic cheques, which means a cheque that contains the exact mirror image of a paper cheque and is generated, written and signed in a secure system ensuring safety standards with the use of digital signature (with or without biometrics signature) and asymmetric crypto system. Closely linked to the concept of electronic cheque is the process of cheque truncation, which has been given legal backing by the Act. It is a process, which avoids the problem of physical movement and transportation of cheques.

In the cheque truncation process, the cheque is halted at some stage during the clearing cycle. It is not returned for final payment to the bank on which it is drawn. The truncation is made where the physical movement of the cheque will be halted and an electronically transmitted image of the cheque would be passed on, for further processing and payment. At present, the drawee bank has the right to be shown the instrument on presentment and to have the instrument delivered to it on payment.

In cheque truncation, the instrument remains with the collecting bank and a certificate is issued on the foot of the printout of the electronic image of a truncated cheque by the banker who paid the instrument, which shall be prima facie proof of such payment. Accordingly, Section 81 of the Act has been amended and even after the payment, the banker who received the payment shall be entitled to retain the truncated cheque.

Section 89 of the Act has also been amended and where the cheque is the electronic image of a truncated cheque, any difference in apparent tenor of the electronic image and the truncated cheque will be a material alteration and it shall be the duty f the bank or the clearing house, as the case may be, to ensure the exactness of the apparent tenor of the electronic image of the truncated cheque while truncating and transmitting the image. In consonance with the amendment of the Act, Information Technology Act, 2000 (the IT Act) has also been amended to give legal sanction to the electronic cheque transactions. Consequently, as per section 13 of the IT Act, in the electronic payment system the finality of irrevocable nature takes place when the payment is made. It is so because dispatch of electronic record occurs when it enters the computer resource outside the control of the sender. Since, in electronic systems actions are instantaneous and there is no time lag, the present concept of stop payment has to be brought in consonance with the system and usage. Also, there will remain concerns pertaining to hacking and manipulations of electronic records, which can only be perfected over a period of time with advancement of technology. The initiation of the electronic transaction process in the banking sector would have far reaching results in terms of cost and speed of transactions. Nevertheless, in the present scenario, internet banking is in the earliest stages of development and an electronic cheque has its own limitations in India.

Internet banking restricts access only to internet users and the density of internet users in India is dismal. Consumers unfamiliarity with the basic mechanics of internet working and data flow creates additional obstacles. But, this is a significant beginning and over time electronic payment will proliferate to masses.

The writer is senior associate, Fox Mandal & Co