Legal framework of e-banking
The banking sector is considered the heart of an economy, particularly in developing countries. In this digital age, the integration of banking with the information technology (IT) has benefited the consumers in many aspects like time, cost and operational efficiency.
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.
At present the only statutory law in Bangladesh relating to cheque is the Negotiable Instrument Act, 1881. Section 6 of the act defines a cheque: it is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
The bill of exchange is an instrument. On that instrument we have just write the direction to make payment of such an amount to such a person. That direction must be unconditional. If conditions are put, then 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."
Paper cheques are becoming obsolete day by day. Currently most e-commerce applications are based on the credit or debit card or bank card. The mobile phone transaction has also started on a limited scale. 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 in Bangladesh by the regulations, circulars and guidelines of the Bangladesh Bank (BB). 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.
Bangladesh Bank has drafted the Payment System Act 2015 with a provision to regulate payment services like cheque clearing, ATM and point-of-sales transactions and mobile and agent banking. Section 2 of the draft of the Payment System Act 2015 deals with definitions. 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", Section 2 (52) "Truncated cheque".
The proposed draft includes the definitions of payment instruments including different forms of cheques. A cheque is paper based in the traditional banking system. At present under the e-banking systems, different models of cheques, including electronic form of cheques (e- cheques), electronic image of cheques and various cards are in practice in several 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 minimum 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 the 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. It never bounces whether because of insufficient balance in the account or a faulty signature. The creditor doesn't have to present it physically at his bank. It enables outstation payments to be credited to the payee's account within 2-3 days. It transfers money at half the cost of a demand draft!
The electronic cheques are modelled on paper checks, 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 it's 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 use of different stakeholders.
A digital signature authentication system as well as a digital clearing system should be developed. The digital clearing system should 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 a 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 to facilitate earning of foreign currency.
The demand for e-cheque has increased after the introduction of agent banking in Bangladesh. The proposed Payment System Act should regulate the system with updated IT infrastructure of agents to be able to support real-time processing and also provide a secure network including end-to-end encryption.
The new definition of cheques in the proposed Payment System Act should be incorporated in other related laws like Negotiated Instruments Act, Banker's Book Evidence Act, Anti-money Laundering Act and also some other laws related to the financial sector. The proposed law will encourage transactions through online instead of cheques. It will be another landmark in the process of making "digital Bangladesh".