Cheques are becoming obsolete

Writing a cheque is now passé for Corporate India. Many companies have completely done away with writing cheques and maintaining records. From Infosys to Hindustan Unilever to Reliance Industries, corporates have switched almost entirely to making e-payments to vendors and staff. They have moved to RBI’s Real Time Gross Settlement (RTGS) system, which enables users to transfer money in real time. Currently over 90% of our payments by value is made in electronic mode.

Though the online payment clearing system has been operational since March 2004, it saw a huge growth in transactions in 2007-08 on the back of robust economic activity. Latest RBI statistics show that customer transactions on the RTGS platform doubled from Rs 71,67,808 crore in 2006-07 to Rs 1,61,00,173 crore in 2007-08 much of the jump being driven by savvy corporates looking to economies on the credit cycle. The RTGS facilitates faster settlement of high value transactions of over Rs 1 lakh.

The platform enables companies to integrate their Enterprise Resource Planning commonly known as ERP systems with the internet banking platforms of major banks, thereby providing a shorter settlement cycle, higher transparency and improved liquidity. While ERP is a software package that has a common database of various business functions, RTGS obviates the need for any human intervention at any stage.

This system (RTGS), apart from enabling assured payment to the vendor on the due date also helps companies to strike better commercial terms.

The implementation of this system resulted in many companies bringing down their administrative costs, closing their back offices and redeploying accounting staff to other frontline functions. It facilitates centralization of their activities, connecting various outfits, improving the process and getting rid of account reconciliation work. A case can be which is the case of oil major BPCL which earlier outsourced the cheque payment activity to Deutsche Bank and one of the first to switch to e-payment.
Banks are also using RTGS as a selling point to companies. As part of the package, they are advising clients to shift their working capital, treasury and investor related payment to the electronic mode. Transactions of smaller amounts are settled through RBI’s National Electronic Funds Transfer (NEFT) system, which confirms transactions on the same day.

For Citibank e-payment is a key focus area of its transaction services business. The largest foreign bank in the country has processed transactions to the tune of Rs 266,088 crore (including both inward and outward remittances), according to RBI data for July 2008. Leading the table is HDFC Bank (Rs 803,037 crore) followed by Stan-Chart Bank (Rs 289,767 crore) and Citibank.

Their volumes have more than doubled in the last two years and we expect an 80% increase in the current year despite slowdown in capital markets. The increase in volumes is primarily due to higher adoption rate across customer segments and different nature of payments, including B2C. Further pre and post transactional services have increased the confidence in the system resulting in higher usage.

Banks like Citibank, ICICI and other leading banks are providing e-payment facility (say for telephone, internet and other utility bills) by the account holder irrespective of Business or personal account which is a real Convenience for individuals. By e-payment the account holder can even pay even on the last due date as the funds are transferred to payee’s account immediately. If standing instructions are given banks having e-payment facility can make payment on the required date from payer’s account (subject to account holder’s balance in the account) to payee or utility service provider.