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e-Cheque (MICR cheque) in Bangladesh.

Background:
e-Cheques (MICR cheques) were introduced in Bangladesh through a
directive by Bangladesh Bank in 2010. The most important component
of e-Cheques are Automated Clearing House (ACH) and Bangladesh
Automated Cheque Processing System (BACPS).

By law only Bangladesh Bank is allowed to operate a Clearing House in


Bangladesh. The Department for International Development (DFID) of
United Kingdom funded $8.5 million to implement the Bangladesh
Automated Clearing House (BACH).

Currently the automated clearinghouse runs for about 1,100 bank


branches in Dhaka and bank branches in Rajshahi have just started. All
bank branches in the country will come under the system in phases.

Introduction:
What are e Cheques (MICR) Cheques
MICR cheques are not very different from regular cheques. MICR stands
for Magnetic Ink Character Recognition. These cheques contain a line
written in Magnetic Ink that can be read by special cheque scanners.

Fig. 1 Sample scanned MICR cheque showing MICR line

Fig. 2 Data in the MICR line

Process of MICR Cheques


For the user the method of using a MICR cheque is not any different
from using regular cheque. As with normal cheque customers will
deposit cheque for collection at their bank branch for the amount
stated on the face of the cheque.
At the bank the process is significantly different. After completing their
usual steps of noting the cheque amount and updating the customer
balance the bank will
1) Using special cheque processing software and scanner the bank
will scan the cheque and convert the paper cheque into an
image.
2) The image and required information in the cheque,
a. amount of cheque, date, Payee bank, branch, account
name, number,
b. Payer bank, branch, account name, number &
will be converted into an XML file. This file is called the OCE
(Outward Clearing Envelope) file.

Fig 3. Cheque Scanner

3) The depositing bank will send the OCE file to BACPS through a
secure computer and data network.
4) BACPS will then process and send the images and information to
the paying banks for validation.
Fig. 4 Software Interface

5) When the image and cheque information is going from the BACPS
to the paying bank it will be called ICE (Inward Clearing
Envelope).
6) Paying banks will examine the pertinent images and information
for validation. If the information is found OK, paying bank will
send them back to the BACH for payment. If any inconsistency
found (like signature mismatch, insufficient fund, etc.), paying
banks will return them with specific reasons.
7) At a specific cut-off time, BACPS will accumulate all the
information, work out a single net amount for each bank, and
send the return information to the collecting banks with net
figure.
8) Collecting banks will process the return information and adjust
the customer-accounts accordingly. These operations of BACPS
using Information and Communication Technology (ICT) are
secure, reliable and fast with no impact on the customers.

During the time of manual clearing house it used to take 2 to 3 days to


clear a cheque and even more time in case of inter-regional clearing.
Implementation of BACPS has decreased the time for clearing to a
single day within the clearing house region.
This has resulted in faster bank transactions and helping grow overall
trade and commerce all over the country having significant effect on
the monetary management and economic growth.

Who are the users:


Currently all bank account holders in the Dhaka Clearing House and
Rajshahi Clearing House region are using MICR cheques. But the
scanning and processing of MICR cheques is possible only at bank
branches.

Processing the MICR cheques can be done at Merchant locations. This


will allow more people to use and benefit from MICR cheques.

What are the benefits for banks and users


The benefits for users is
faster payment processing
trusted, secure method of cheque payment
zero or very low service charge

For banks the benefits are:


Receiving payments faster
Authorized mode of payment
Will help banks increase customers

How do they compare:


MICR cheques may be compared with other modes of payment
MICR Cheques Credit card Pay Pal
Authorizati Authorized by Authorized by Not authorized
on: Bangladesh Bangladesh by Bangladesh
Government. Government. Government
Usability: MICR cheques can Credit cards are Pay pal cannot
be used in all most widely be used for non-
instances where usable. They can internet
older cheques be used for payments and it
could be used. But purchase in most is not authorized
MICR cheques shops in for use in
cannot be for Bangladesh. Bangladesh.
online payments. They can also be Although non
Also most used on the authorized
merchants do not internet. payment
accept cheques as Although channels are
payment. But this Bangladeshi available.
may change in the banks limit the
future. use of credit
cards on the
internet due to
security issues.

Control systems
BACH & BACPS have many control and security features built in. For
example secure computer and data network, strong legal structure and
law enforcement.

Pricing model
MICR cheques are a free service provided by banks to their customers.
There may be a small charge for printing the cheques, but banks often
absorb this cost.

Currently the cheque scanning service is available at the banks only. If


this service is made available at the Merchants premise then there will
be some cost involved.
This cost will include the cost of the scanner, server and network
equipment and the service bank provides to the Merchant.

Strengths
The strength of MICR cheques are as follows:
1) Wide acceptance & trust: Majority of Bangladeshi people already
use cheques, people trust cheque as a valid means of making
and receiving payments.
2) Legal: The law against non-payment of cheque (cheque bounce)
is strong and relatively easy to apply. So most people do not
think of committing fraud with cheque.
3) Validation: When cheques are cleared for payment, the
signature, cheque number etc are all verified. So from a technical
point fraud is more difficult.
4) Low cost: Cheques are a low cost payment method. All current
accounts provide cheques free of cost although there may be a
small service charge for printing cheques. There is no additional
cost involved.
What does the future hold
Currently the MICR cheque scanning is done only at the Banks. This
system can be extended up to the level of merchants. Merchants can
make an arrangement with their respective banks so that the bank
cheque scanners are available at the check out counter of the
merchant. Customer can pay using his/her cheque book. The cheque
will be scanned and deposited into the merchants bank account.

Currently Bangladesh Bank operates the clearing house as a batch


process; the clearing house runs twice each day. But the system can be
run in real time. Once the clearing house is running in real time the
cheque clearing can happen even faster. It is possible that the whole
process will not take much more time than the time taken to approve a
credit card payment.

Conclusion
eCheques or MICR cheques have a very bright future in Bangladesh,
because the legal and governmental obstacles. In the case of MICR
cheques this obstacle has been overcome.

Reference:
Bangladesh Bank Payment and Settlement Systems
Guide Chapter 10 - www.bangladesh-
bank.org/pub/annual/anreport/ar0708/chap10.pdf

An Overview - http://www.bangladesh-
bank.org/regulationguideline/paymentsettlementsr2009.pdf

Circular No. 02/2009 D - www.bangladesh-


bank.org/.../circulars/dcmps/feb162009psd2e.pdf

The Financial Express


BB to introduce automated clearing house from Aug 3
http://www.thefinancialexpress-bd.com/2009/03/01/60133.html

BB to launch automated clearing house on Oct 7 -


http://www.thefinancialexpress-bd.com/more.php?
news_id=112043