What is Positive Pay and why is it relevant?

Do you know these rules surrounding 'Postive Pay' and how it could affect the common man in terms of cheque limits?

What is Positive Pay and why is it relevant?

Positive pay’ is a system that the Reserve Bank of India (RBI) implemented on 1 January 2021 to help prevent fraud involving high-value cheques. The system has been in place in other markets for a few years now, and some banks have been implementing it in India as well since 2016. It still is a guideline by the RBI and not a law, meaning that banks are free to implement it as they see fit.

How does Positive pay work?

Positive Pay works on a simple principle: in case of high-value cheques, the bank needs to be notified by the person issuing the cheque before it is handed to the beneficiary, or the bank checks with the account holder once the cheque is presented for clearing. If the bank already has a notification from the issuer, it verifies the details provided about the cheque, and only honours it if the details match. In the latter system, it will not honour a presented cheque until the issuer responds to the bank’s communication and verifies that the details are correct.

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Who will Positive pay benefit?

Firstly, Positive Pay will help consumers who are at risk of fraud. Cheque fraud can range from making a whole new cheque, to changing the amount on an authentic cheque to a higher amount, to changing the name of the beneficiary on the cheque. Positive Pay helps greatly reduce the risk of someone losing money to fraud. The liability when someone falls victim to such fraud is not set in stone, so banks usually will not accept responsibility for it. 

Secondly, Positive Pay helps secure banks against fraud as well – cheques above Rs. 50,000 constitute only 20% of the total number of cheques presented to banks, but involve around 80% of the money via cheque. Positive Pay thus helps safeguard around 80% of the value of cheques presented to banks, which is a good thing.

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Will I need to verify my cheques when I issue Positive pay?

The government has issued instructions that cheques above Rs 50,000 should ideally be verified via Positive Pay, and is considering making it mandatory for cheques of Rs 5 lakh and above. However, as mentioned earlier, this isn’t a law – it is a voluntary decision by the banks that choose to implement it.

How can I use Positive Pay?

Each bank has a different system for Positive Pay. ICICI Bank and IDBI Bank, for example, have a provision in their respective mobile phone apps where the issuer can upload the details of the issued cheque. HDFC Bank requires the issuer to send an email in a particular format from the email ID registered to the account. Banks can require the details to be uploaded at least 24 hours before the cheque is presented for clearing. It is best to check with your bank as to what the exact procedure is for you.

Positive Pay may not be mandated by law as of now, but its implementation is a step toward helping eliminate cheque fraud for large transactions. How to protect your credit reports from fraud?

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