Five Ways to Stimulate Electronic Payments (Hint: Discouraging Cheques Is Not One Of Them)
The number of times the words "should" and "charge" appear in this article titled "RBI
WANTS TO DISCOURAGE USE OF CHEQUES" got me wondering if "negative reinforcement" is seen as the only way to wean people away from their time-worn habit of using cheques and move them to electronic payments. For the uninitiated, RBI, or Reserve
Bank of India, is India's central bank cum regulator of the Indian banking industry.
Instead of solely contemplating measures to ban cheques for multifarious transactions and levy a charge for permitting their use in the others, I wish RBI and the banking industry in India focused their efforts on finding ways to directly stimulate the use
of electronic payments. With that approach, I'm sure that they'd accomplish the desired shift from cheque to electronic payments a lot faster and in a manner that is more agreeable with payers and payees, who are the two most important stakeholders in a payment.
While it's easy to agree with the article's assertion, "with electronic payments catching up, cheque usage will come down", the growth in electronic payments is not going to happen by accident. Individuals and corporates have been accustomed to using cheques
for a long, long time and will switch to electronic payments only if they find a compelling reason to do so. IMHO, it's the responsibility of the banking industry to provide that reason.
Based on my experience of using cheques and electronic payments in both my personal and professional life for several years, let me suggest the following "positive reinforcements" for spurring greater adoption of electronic payments by retail and corporate
banking customers alike:
- REALTIME BENEFICIARY CONFIRMATION. While initiating an NEFT (India's version of ACH payment) or RTGS payment, as soon as the payer enters the beneficiary's bank account details in the fund transfer screen, the Internet Banking portal should
provide a confirmation of the name of the beneficiary in realtime. This will assure payers that, when they hit the submit button, their money would reach the right party. Payers are used to getting this assurance for ages when they've made payments with cheques
since they've always drawn cheques to the beneficiary by name. Therefore, it's unrealistic to expect them to rush to ePayments when their banks' websites not only ask them to enter long account numbers and complex bank codes but also do their best to scare
them away with messages like "Credit will be based solely on the beneficiary account number information; the beneficiary's name will not be used. We will not be responsible for funds transferred to an unintended recipient".
- LONG MEMO FIELD. The memo / description field on electronic payment forms should be long enough to accommodate the narration that a payer would need / like to use
in order to clearly communicate the purpose of the payment to the payee. Take, for example, an individual used to making a health insurance premium payment by cheque. The insurance company typically asks him to write something like "Health Insurance Premium
for FY2012-13 for John Doe & Family" on the reverse of the cheque. When John Doe goes electronic, he might find his bank stopping his narration midway. When I tried this on my bank's website, I wasn't able to get past "Health Insurance Pre" in its transfer
description field (cf. screenshot at the end of this post). Such truncations expose poor screen design. Workarounds - like the one I'd highlighted in my personal blog post
How Usability Can Increase Adoption of Internet Banking given by my UK bank - could prove disastrous to payers. By truncating narrations, policyholders like John Doe might get into trouble and find themselves without cover despite making their
premium payments on time just because their insurers had no clue what the payments were meant for and failed to apply them to their policies.
- COOLING PERIOD. Cheques support revocability - the ability to cancel a payment once made - via the "Stop Cheque" facility. On the other hand, most forms of electronic payments don't. In fact, some might argue that irrevocability is one
of the major strengths of ePayments. While I won't dispute that, there are genuine reasons why a payer might need to cancel a payment after the fact. Expecting the equivalent of "stop cheque" in an electronic payment might be asking for too much. That said,
it shouldn't be very hard hard for banks to introduce a "cooling period" within which payers can withdraw ePayments that they've already submitted. As a matter of fact, the recently enacted Dodd Frank 1073 mandates such a cooling period - of 30 minutes - for
all electronic cross-border payments originating inside the USA.
Raising transfer limits and modifying the authorization process are two more ways that could help increase the adoption of electronic payments - more on them in a follow-up post.
While each bank might need to conduct a detailed study to evaluate the feasibility of implementing the above measures in the context of its own business processes and IT landscape, I hope my list serves as a useful starting point.