Transcript A Future with E-cheques - The Hong Kong General Chamber of

Hong Kong General Chamber of Commerce
Financial & Treasury Services Committee Roundtable Luncheon
A Future with E-cheques
Mr. Shu-Pui Li
Head, Financial Infrastructure Development Division
Financial Infrastructure Department
Hong Kong Monetary Authority
23 June 2014
Agenda
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Introduction of e-cheque
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Key drivers for the development of e-cheque

Nature and benefits of e-cheque

High-level operating model
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Security features of e-cheque
Business cases for corporates to use e-cheque
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Introduction of e-cheque
Need for an alternative of paper cheque
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Resource intensive and costly for banks to process cheques
(Hong Kong banks need to spend up to HK$1.7 billion a year on
processing cheque)

Increasing challenge for banks due to a wider usage of RMB
cheques (e.g. for RMB IPO and RMB insurance policies)
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Paper based meaning not environmental-friendly
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Not convenient to use as it requires physical delivery and
presentment
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E-cheque
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e-cheque: issued, delivered and presented electronically
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Key features:
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
bill of exchange under the Bills of Exchange Ordinance (BOEO)
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non-negotiable and non-transferable
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digitally signed by payer and certified by payer’s bank
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support HKD, USD and RMB denominated e-cheque
Target launch date: 2H 2015
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Benefits of e-cheque
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Retain all basic features and benefits of paper cheque and
with the following additional benefits:

remove the need for physical delivery and presentment
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carry enhanced security features

remove the costly and manual processing of paper cheque
Possible to expand to cross-border usage in the future
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overseas residents with bank accounts in Hong Kong can
easily issue and present e-cheque

Potentially cross-border cheque collection service can be
facilitated by e-cheque
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E-cheque Flow
(for banks which provide e-cheque issuance and presentment
services on their own)
4B
Payer
Alternatively, payer can send e-cheque to
payee via email (if payer wishes to send echeque to payee, probably together with
other documents)
Payee
Digital
signed
e-cheque
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3
through
Internet
Request for
Banking or
issuing
other
e-cheque
authenticated
means
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4A
Send e-cheque to payee by
payer’s bank by email
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Digital
signed
e-cheque
Digital
signed
e-cheque
Digital
signed
e-cheque
Create
e-cheque
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8
Inward
clearing file
and signed
e-cheques
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Verify signature,
internal records
and check for
duplicate
presentments
Present
e-cheque
through
Internet
Banking or
other means
Payer’s Bank
Verify
signature,
payee identity
and
credit deposit
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HKICL
Clear and settle
e-cheque
Outward
clearing file
and signed
e-cheques
Payee’s Bank
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E-cheque Flow
(for banks which ride on HKICL’s centralized e-cheque presentment
portal to provide presentment service to their customers)
4B
Payer
Alternatively, payer can send e-cheque to
payee via email (if payer wishes to send echeque to payee, probably together with
other documents)
Payee
Digital
signed
e-cheque
1
4A
3
through
Internet
Request for
Banking or
issuing
other
e-cheque
authenticated
means
Send e-cheque to payee by
payer’s bank by email
Digital
signed
e-cheque
5
Present
e-cheque and input
payee’s bank details
through centralized
portal
Digital
signed
e-cheque
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2
Create
e-cheque
Verify
signature
9
Inward
clearing file
and signed
e-cheques
10
Verify signature,
internal records
and check for
duplicate
presentments
Payer’s Bank
HKICL/
Centralized
Presentment
portal
Clear and settle
e-cheque
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7
Verify
payee identity
and
credit deposit
Outward clearing
file and signed
e-cheques
Payee’s Bank
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Animated video and Prototype demo
Link to animated video
Link to prototype demo
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9
Security measures
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Virtual cheque book: Avoid unauthorized access to cheque books
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2 factor authentication (2FA): Protect bank customers from
internet banking fraud
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Digital signature using PKI technology: Ensure the integrity of echeque
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E-cheque issuance records: Allow payer bank to check the
presented cheques against its own issuance records
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Centralized presentment service: Guard against duplicate
presentment
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Use of PKI technology in e-cheque
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E-cheque will be signed using the digital certificate issued by one of
the recognized Certification Authorities
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Two types of digital certificate can be used:
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General purpose or personal digital certificate
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Special purpose digital certificate
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Safe kept by the owner; can be used for all purposes
Safe kept by payer’s bank; can be used for e-cheque and other banking
services of that payer’s bank
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Progress made
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System development under way
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Based on survey results, most retail banks have indicated interest
to offer e-cheque service to their customers
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Marketing campaigns will be organised closer to the service launch
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Overall speaking, the project is progressing as planned
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It is our target to launch the service in 2H 2015
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Business cases for corporates
to use e-cheque
Cost and benefit analysis for corporates to use e-cheque
Costs
Bank
fees: based on our understanding, banks are not going to levy
any fees for their customers to use e-cheques, except for bulk issuance
which will also be less costly than that of paper cheques
Internal
costs: Nil as corporates can easily issue and present echeques through internet banking platforms
Benefits
Easier
to do reconciliation based on electronic records
Enhanced
Possible
processing efficiency due to automation
cost saving for bulk cheque issuance
The benefits of using e-cheque substantially outweigh its costs!
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Case 1: Issuance of IPO refund cheques
Paper cheques
E-cheques
From issuers’ perspective
Time needed to issue
IPO refund cheques
More time needed for cheque
printing and mailing
Shorter time needed to issue
e-cheques
Costs involved
Processing, printing and
mailing costs
Significant cost saving for
using e-cheques (as there is
no printing or mailing cost)
From IPO subscribers’ perspective
Time needed to receive 1-2 days after refund day due
IPO refund cheques
to postal delay
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Shorter time needed to
receive e-cheques (i.e. likely
for them to receive e-cheques
on refund day)
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Case 2: Collection of cheque payments
Paper cheques
E-cheques
Efforts needed to do
reconciliation (e.g.
checking against
invoice amount and
due date)
Substantial efforts needed
Minimal efforts needed
Presentment cut-off
time
Cheques presented at or
before 5pm on a business
day will mostly be treated as
same day clearing. Cheques
presented after 5pm will be
treated as next day clearing
Possible for banks to extend the
presentment cut-off time to 7pm
or 8pm, thus providing a longer
window for e-cheque deposit for
same day clearing and allowing
corporates to receive good funds
earlier
From corporates’ perspective
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Q&A