http://www.thefinancialexpress-bd.

com/2015/10/28/113802
VOL 22 NO 339 REGD NO DA 1589 | Dhaka, Wednesday, October 28 2015

Draft Payment System Act 2015

A landmark in the process of making Digital Bangladesh

M. S. Siddiqui

Banking sector is considered the heart of an economy. In this digital age, the integration of the banking and the information technology industries has
benefited the consumers in many respects - time, cost and operational efficiency.
The number of transactions in cash is more than transaction by cheque in Bangladesh. The mode of transactions has now started changing to digital.
Even then, the main payment system is still on the basis of paper cheque, TT or draft drawn on a certain bank for payment of certain amount through
banking clearing systems.
Cheque is the most widely accepted Negotiable Instrument to settle transactions in the world. Paper cheque provides consumers and businesses critical
alternative payments mechanism. Today billions of cheques are written and processed each year, and consumers and businesses remain confident and
satisfied with writing cheques. However, cheque processing is experiencing a radical change as financial institutions and their customers now have new,
more efficient ways to process and clear cheques. Financial institutions need to develop and implement a cheque image clearing strategy to remain
competitive in the future.
At present the only statutory law relating to cheque in Bangladesh is the Negotiable Instrument Act, 1881. Section 6 of the act defines a cheque as a bill
of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. In that definition, the cheque has three
components: first, it is a bill of exchange, second, it is in relation to a bank and third, it is a demand.
The bill of exchange is an instrument. On that instrument we just write the direction to make payment of such and such an amount to such and such
other person. That direction must be unconditional. It is not required to put conditions; if conditions are put, it will be presumed that it is not a bill of
exchange. As per the Negotiable Instrument Act, "A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker,
directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument." Other
components are Bank, so the bank where the cheque has been presented for payment which is issued on demand. Finally, the cheque is an instrument
and on that instrument we put direction without any conditions to make payment to some one. It is drawn on a specific bank. When the cheque is
presented to such a specific bank for payment by way on demanding, the payment is made accordingly.
The days of paper cheques are decaying day by day. Currently most E-Commerce applications are based on the credit or debit card or bank card. The
cards are widely used in many other countries by internet users who log on to different sites giving their credit card nos. along with some additional
information such as Birth Date, a Pre-defined Password/Email ID. The mobile phone transaction has also started on a limited scale for payment through
cell phone instruction. The Electronic cheques are another form of Electronic tokens related to someone's e-account of his bank. These are designed to
accommodate many individuals and entities that might prefer to pay on credit or through some mechanism other than cash. A buyer sends a cheque to
the seller for a certain amount of money. These cheques may be sent using mail or other transport methods. When deposited, the cheque authorises the
transfer of account balances from the account against which the cheque was drawn to the account to which the cheque was deposited.
The country's payment system is now operated by regulations, circulars and guidelines by the Bangladesh Bank, the central bank. The payment system
has entered a diversified zone after the introduction of the National Payment Switch and Bangladesh Automated Clearing House. These automated
payment system will facilitate the introduction of e-cheque.
The Bangladesh Bank has drafted the Payment System Act 2015 with a provision to regulate payment services like cheque clearing, ATM and point-ofsales transactions and mobile and agent banking. Section 2 in the draft of the Payment System Act 2015 is the definition section. It includes different
modern definitions of cheque in different sub-sections of section 2, for example, section 2(5) "Cheque" , Section 2 (6) "Cheque in the electronic form" ,
Section 2(13) "Cheque Image", Section 2 (18) "Electronic presentment of cheques", and Section 2 (52) "Truncated cheque".
The draft law includes the definitions of payment instruments including different forms of cheques. A cheque is paper-based under the traditional banking
system. At present under the e-banking system, different models of cheques including electronic form of cheques (e-cheques), electronic image of
cheques and several cards are in practice in some countries. A cheque in the electronic form means a cheque which contains the exact mirror image of a
paper cheque, and is generated, written and signed in a secure system ensuring the maximum safety standards with the use of digital signature (with or
without biometrics signature) and asymmetric crypto system.

In Bangladesh, machine-readable magnetic ink character recognition (MICR) cheques have been introduced in online banking and some banks have
started internet banking by using computer or other devices connected with internet under the banner of e-banking.
The paper cheques are valid for six months from the date of issue but in a standard system in developed economies, an electronic cheque is designed to
never expire. Such a cheque never bounces whether because of insufficient balance in the account or a faulty signature. The creditor doesn't have to
present such a cheque physically at his bank. Such a cheque enables outstation payments to be credited to the payee's account within 2-3 days. Such a
cheque transfers money at half the cost of a demand draft.
The electronic cheques are modelled on paper cheques, except that they are initiated electronically. They use digital signatures for signing and endorsing
and require the use of digital certificates to authenticate the payer, the payer's bank and bank account. Signing a document is a fundamental legal act, so
much so that almost every commercial document of any importance is signed. They are delivered either by direct transmission using telephone lines or by
public networks such as the Internet.
The major concern of the e-cheque is signature and its authentication. The signature of an electronic document is by means of a mathematical process.
An 'electronic document' is a set of numbers (some proprietary code) which represents text or other information. This set of numbers, in computing
terminology, a 'file' will be recorded temporarily in a computer's working memory or permanently on some storage medium, such as a magnetic disk in a
server maintained by the central bank or any other independent service provider. The file which constitutes the electronic document can be copied from
place to place via telecommunications devices for the use of different stakeholders.
This may be framed accordingly and digital signature authentication system and digital clearing system should be developed. The digital clearing system
also have link to signature authentication service provider. Conventional cryptography of e-cheques makes them easier to process than systems based on
public key cryptography (like digital cash). They can serve corporate markets. Firms can use them in more cost-effective manner. But the cryptography
will easily attract overseas transaction and it is not allowed in existing Foreign Exchange Regulation Act in Bangladesh. This may be allowed to encourage
e-business with overseas buyers and can facilitate earning of foreign currency.
The demand for putting in place e-cheque has intensified after the introduction of agent banking in Bangladesh. The law should allow Bangladesh to
regulate the system with updated IT infrastructure of agents to be able to support real-time processing and able to provide a secured network including
end-to-end encryption.
The new definition of cheques in the proposed act should be incorporated in other related laws like Negotiated Instruments Act, Banker's Book Evidence
Act, anti-money laundering acts and also some financial sector-related other laws.
Such a law will encourage the transactions through online instead of cheques. The proposed law will be a landmark in the process of making a "Digital
Bangladesh".
The writer is a Legal Economist.
shah@banglachemical.com