The cheque truncation policy of the Central Bank of Nigeria commenced penultimate Friday, with the Lagos Clearing House serving as the pilot zone. ADEMOLA ALAWIYE examines the feasibility of the scheme.

As part of efforts to revamp the national payments system, the Central Bank of Nigeria, in August, 2007, inaugurated the Payments System Vision 2020 initiative.

The process commenced with the unveiling of the PSV2020 strategy document, which benchmarks the Nigerian payments system against global best practice.

Following a survey by the apex bank, it created 11 working groups, with members drawn from the CBN, deposit money banks and other stakeholder-institutions in the payments ecosystem.

One of the working groups was the cheque and automated clearing house, which was charged with the following mandates, including drafting the policy for the maximum limit on cheques, updating the Nigerian bankers clearing house rules, facilitating the introduction of cheque truncation/express clearing in Nigeria’s automated clearing house infrastructure and monitoring and making recommendations to the apex bank on the ACH infrastructure, in line with global best practice.

Consequently, the CBN said it approved the guidelines on cheque truncation in Nigeria to further improve the efficiency and timeliness of cheque clearing in the country.

Cheque truncation system involves the conversion of physical cheque into electronic form for transmission to the paying bank, thereby eliminating cumbersome physical presentation of the cheque and saving time and processing costs.

According to the CBN, the objectives of the cheque truncation guidelines are to- provide for the regulation and management of cheque truncation in Nigeria with a view to reducing cost and days of clearing instruments; articulate the rights and responsibilities of presenting and paying banks in the cheque truncation system.

Other objectives, according to the regulator, are to provide for minimum technical and operational standards for cheque truncation and to facilitate the implementation of an effective and efficient payments system in the Nigerian banking industry.

The CBN, in a statement, said the implementation of the initiative would reduce the cheque clearing cycle from T+2 to T+1, and thus make it more attractive to users, as an alternative means of payments, instead of transacting in cash.

Under cheque truncation, the clearing cycle will reduce by one day. It means if a customer deposits a cheque early on Monday; value will be obtained on Wednesday as against Thursday under the previous clearing cycle.

Commenting on the implementation and deployment of the system, the CBN said, “Settlement shall be generated on the basis of the existing MICR code line. The ‘amount’ field shall be captured and keyed in separately by the presenting bank. The specifications of the cheques detailed for MICR clearing shall be followed.”

Under the system, according to the CBN, the cheque details are captured, typically by the bank presenting the cheque or its clearing agent and electronically presented in an agreed format to the Clearing House for onward delivery to the paying bank for payment.

“Unlike the more common form of presentment where a cheque is physically presented to the paying bank, a truncated cheque is typically stored by the presenting bank,” it added.

However, experts believe the laudable scheme have its own challenges going by the low level of technology in the country.

The Chief Executive Officer, Fatrax Securities Company Limited, Dr. Wale Ositelu said, “We need hardware to be able to present it. Then we need enlightenment on the part of those that are to participate in the programme. The onus of responsibility falls on the bank that is presenting the cheque. So, those are some of the challenges that have to be addressed.

“And of course, in order to address the risk, the CBN will need to visit the banks and the Nigerian Interbank Settlement System to ensure that everything is in place and to mitigate the risks that could arise from the implementation of the cheque truncation policy.”

A financial analyst, Mr. Durotimi Adegoke, said, “First, it may not be easy to prove fraud if someone alters your cheque. Because substitute checks are copies, changes made to the original may be harder to detect. Secondly, you can no longer count on a float of a few days between the time you write a check and the time the cheque clears. This threatens to result in many more bounced cheques and huge costs to consumers in overdraft charges.”

Meanwhile, following the commencement of the policy in Lagos banks last week, Lagosians have endorsed the policy, saying that it was a commendable initiative by the CBN.

Some banks’ customers, who spoke with our correspondent in various banks, said the development would reduce delay in getting value for cheques.

Mr. Adefemi Adekunle, a customer in one of the banks, told our correspondent that the initiative would facilitate the implementation of an effective and efficient payment system in the banking industry.

One of the bank’s attendants said it would improve the efficiency of cheque clearing and ensure faster settlement of cheques by eliminating the cumbersome process of exchanging physical cheques amongst clearing banks.

The CBN had earlier announced that it would commence the cheque truncation scheme on August, saying that, “to ensure that this new process is efficient and seamless, account holders would have to ensure that their accounts are sufficiently funded before cheques are presented, as all cheques presented to an unfunded account will be returned unpaid.”

It added that account holders would be required to pre-confirm all cheques before they were presented to prevent cheques being returned unpaid.

“Special mandates on the issuance account such as the use of seals, embossment, thumb-print or colours of pen, other than black pens stated as part of a mandate would no longer be valid as only images will now be used during the clearing session. Hence, it is necessary that customers with such special mandates update their mandates,” it stated.

The bank also stated that it would no longer be in a position to oblige requests for physical confirmation of cheques as only images of cheques would be in the bank’s possession.

Source: Punch