With cheque truncation, the cheque clearing system in Malaysia will be transformed from one driven by the physical exchange of cheques to the electronic capture and transmission of cheque images and data between the banks and the clearing house. Cheque conversion, is also being introduced as a new facility initially for organisations that receive large volumes of cheques such as the utility companies, telcos, insurance companies and stock brokers. This facility would enable such organisations to convert the data in the magnetic ink character recognition (MICR) code in the cheques received on their own, into payment instructions to debit the drawers’ account. This would facilitate the prompt crediting of funds into their accounts.
The introduction of CTCS is an important step in modernising the cheque processing infrastructure in Malaysia as it paves the way towards the electronification of cheques and reduction of risks and costs associated with paper-based payment instruments. Although in recent years, there has been a shift in the payment mode from cheques to electronic payments, cheques continue to be the dominant payment instrument, accounting for 93% of the non-cash payment value. Hence, enhancing the efficiency of cheque clearing would contribute towards lowering operational costs, the cost of doing business thereby enhancing the overall competitiveness for businesses and the economy as a whole.
Customers and businesses will benefit from the speedier and more efficient cheque clearing system especially in the timing of the availability of funds from the deposit of outstation cheques, cheque conversion facility and the return of unpaid cheques to payees. Under the CTCS, outstation as well as local cheques will be cleared on the same day and funds made available as early as the next business day, compared to between 5 to 8 business days for outstation cheques currently. Express clearing of cheques is also available under the CTCS which provides for same day clearing and funds availability.
To facilitate the implementation of the CTCS and to enable the banks to replace the physical presentment of cheques for clearing, the Bills of Exchange Act 1949 has been amended to allow banks to present the electronic image and data of the cheques for payment. The Evidence Act 1950 also recognizes the computer print out of the image and data of cheques as evidence in court in place of the physical cheques. In addition, the printing of the name of the company and the registration number on the cheque in lieu of rubber stamp, chop or seal, complies with the requirements of the Companies Act 1965.
The longer term benefit from the implementation of CTCS is expected to be reaped by businesses, the banking industry and the country as a whole as the electronification of cheques, in particular, the conversion of cheque payments into electronic payment instructions will spearhead the migration to electronic payments. Capitalising on the high number of ATM cards of more than 21 million in the country, efforts are also being undertaken to position the ATM card as a debit card to be used in place of cash. Efforts are also being taken to leverage on the increasing popularity of the Internet as a channel for undertaking banking and payment transactions. In additions, Malaysia's high mobile phone penetration, will also be leveraged upon to increase the adoption and offering of electronic payment services.
Bank Negara Malaysia
8 April 2008
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