Banking sector tightens screws on fraud
Isaac Pinielo | Wednesday September 9, 2015 18:00
As part of a raft of reforms to counter fraud, a new modernised cheque clearing system, known as the Botswana Automated Clearing House (BACH) is now live. To reinforce the new measures, all cheques in use are to be discontinued by December this year and will be replaced by new ones that have enhanced security features.
Since 2013, BAB has been undertaking a project to modernise the national clearinghouse for interbank payments as part of a broader reform of the National Payment Systems under the auspices of the Bank of Botswana (BoB).
The clearinghouse activities involve the processing of cheque payments and electronic credit and debit funds transfers.
Bankers Association chief executive officer, Oabile Mabusa told Mmegi Business yesterday that they are worried by the prevalence of fraud and other criminal activities. He added that they want to enhance safety and efficiency of payments and settlement systems.
“Fraud is certainly prevalent and we want to close all the gaps by improving payment systems,” he said.
The bankers association says it is implementing the reforms in two phases with the first part being the introduction of the Cheque Imaging and Truncation System (CITS).
CITS, which is already live, is a system by which cheques presented by customers at banks for payment, whether for encashment or deposit, are retained and stored by the receiving bank.
The association added that instead of submitting the cheque to the paying bank, as has been the practice, the receiving bank captures an electronic image of the cheque (known as imaging), which it then sends to the paying bank. It retains the original cheque, known as truncation.
“Therefore, in this new system the cheque image, and not the physical cheque, serves as the basis for payment of the cheque by the paying bank,” it said.
The association said the process of exchanging images and using them as a basis for payment was deemed to be more efficient and less time consuming than the physical exchange of cheques between banks.
“It reduces the clearing cycle and other logistical hurdles for movement of physical cheques from bank-to-bank, or to a central clearing point,” it said.
As a first step, the association stated that customers will realise a reduction in the amount of time it takes to receive value against cheques deposited in their bank accounts, noting that the clearing period, has initially reduced from four days to two days, with a likelihood of further reduction over time.
The second phase of the project will involve the discontinuation of the physical cheques that are currently in use and will be replaced by new ones containing enhanced security features.
The phasing out of old cheques and the introduction of new ones is targeted for the end of December 2015.
According to the Bank of Botswana Banking Supervision Annual Report of 2014, incidents of fraud were reported across the banking sector and most of the cases related to presentation of falsified documents by fraudsters and customers withdrawing funds against uncleared cheques and accounts with insufficient funds.
BoB further implored banks to enhance operational risk mitigation strategies to ensure safety of customer funds.
The BoB statistics show that there has been reduction in usage of cheques in banks as they recorded 16.6 million total volumes of cheques cleared at banks in 2014, which is a decline from 27.3 million registered in 2010.