A T+0 Model of Cheque Truncation System from the Customer to the Clearing House on Android-Based Smart Devices

Mikhail Gbadegesin and Charles Robert Department of Computer Science, University of Ibadan, Ibadan, Nigeria

International Journal of Research in Computer Applications & Information Technology Volume 4, Issue 4, July-August, 2016, pp. 12-18 ISSN Online: 2347-5099, Print: 2348-0009, DOA: 04072016 © IASTER 2016, www.iaster.com

ABSTRACT

The use of cheques in Nigerian banking industries has not been favoured recently because of the time delayed that is accompanied. There are various options of exchanging money amongst the parties involved in monetary transaction. The options include the ATM, Internet banking, mobile banking and social banking. These options have improved the customer satisfaction, also reduced the frequency of customers in the banking halls. The internet and mobile banking has greatly revolved the entire banking process, in which customer are allowed to make instant bank transfers. The national electronic fund transfer (NEFT) verify account numbers, make payments from the comfort of users homes or offices. Also, electronic card systems have given the customers the privilege make their transaction without carrying cash with the use POS terminals and payment platforms such as Mastercard, Visa, and Verve. Other Payment platforms that include: PayPal, Paga, QuickTeller have created opportunities for people to virtually make monetary transaction using various form of electronic techniques.

But with all the benefits attached to these forms of banking systems, cheque has its peculiar advantage in the sense that limit of transactions is removed. The question is how do we marry the comfort of electronic banking systems and cheque system without the delay compromise bearing in mind the peculiarity in Nigerian banking sector? Electronic Cheque system has being adopted in the Nigeria banking industry. This system was founded on the image and character recognition to scan physical cheques, with the required details to facilitate the transaction. The transaction involves the transmission of the image through a secure socket layer from the banks to the clearing house. The current Cheque Truncation system in Nigeria is currently moved from the T+2 to T+1 days of transaction. This was reviewed and re-modified. It was in line with the vision to reduce the time taken on the cheque truncation system to T+0 in 2015. A prototype system was designed on an android system. Android was preferred as a test bench because of its popularity.

The work considered the cheque truncation system in T+0 days using the mobile technologies. A transaction is completed the very day it is initiated. The process cycle starts from the payee, who deposits his cheque with their smartphone (android). The cheque captured images is processed to meet the clearing house standards. Image processing techniques for verification was then carried out. The image captured is stored in in jpeg and tiff format according to the clearing house standard. The native android application synchronizes functions with an embedded web service in providing a secure database tier and to enhance the application logic. On validation the user can verified the transaction status from their device. Hence, a complete cycle of the cheque truncation system is done. Sample tests and evaluations were carried out in line with banking rules. Specific security measures were also followed to reduce the inherent flaws. Recommendation is made to further enhance other possible security problems. This is important bearing in mind the peculiarities of Nigerian banking sectors.

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The work on internet and mobile banking combining cheque system was developed on web services transactions have been able to reduce the banking system to a T-0 model.

1. INTRODUCTION

Nigerian Society has been faced with several problems in her payment system. The population without proper banking access is growing faster than provided solutions. This justified why a lot of commercial activities are still been done with the participant carrying physical cash. In order to speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation- related and logistics-related problems, there is need for enhanced cheque clearing system.

Cheque truncation was introduced in the Nigeria Payment System as a part of the Payment System Vision 2020 in 2013 (Central Bank of Nigeria, 2013). The cheque and Automation Clearing House was charged with the following mandates; (a) to policy for the draft maximum limits on cheques, update the Nigerian bankers clearing house rules, (b) automate cheque truncation /express clearing in Nigeria’s clearing house infrastructure, (c) monitor and recommend to bank on ACH infrastructure in line with international the best practice. The guidelines for the cheque truncation system commenced to facilitate efficiency and timeliness of cheque clearing in Nigeria (Central Bank of Nigeria, 2003).

The cheque truncation system has helped improve the entire customer experience in Nigeria banking industry. The time required to clear a cheque has reduced from T+2 (Transaction day plus two days) to T+1 (transaction day plus one days). The Process is usually from the drawer’s bank to the drawee’s bank through the Clearing House. In order to further improve the standards of the cheque truncation system, the process clearing is required to be reduced to T+0 (transaction day plus zero days). Hence, cheques can be cleared on the day they are issued and drawer’s account is credited. The cycle is completed in one day.

2. RELATED WORK

The concept of electronic commerce, electronic transaction, electronic transaction management and the likes are conducted on the electronic media or by electronic methods. These methods are guided by standards that are regulated by a world body and a local body. Comprehensive list of these bodies and their full activities cannot full discuss here. To situate our work with relevance to other works, few examples of these will suffice. The electronic business concept is defined within the limit of the xDTM Standard. This standard helps organizations and consumers to leverage the speed, efficiency, and convenience of Digital Transaction Management (DTM) to conduct critical transactions online without exposing them to the risks and consequences of using noncompliant technologies. It was established by the xDTM Governing Board, an independent body comprised of leaders from diverse industries (xDTM, 2015).

According to a Visa publication, “Visa and MasterCard have jointly developed the Secure Electronic Transaction (SET) protocol as a method to secure payment card transactions over open networks. SET is being published as an open specification for the industry. This specification is available to be applied to any payment service and may be used by software vendors to develop applications (Mastercard and Visa, 1997). The protocol was reemphasized in Nigeria by the NITDA (NITDA,2009). The emphasis in Nigeria was to provide a legal and regulatory framework for: (a) conducting transactions using electronic or related media; (b). the protection of the rights of consumers and other parties in electronic transactions and services; (c). the protection of personal data; and (d). facilitating electronic commerce in Nigeria. The central bank of Nigeria also gave a guideline on this. It underlined the fact that “The Guidelines were expected to inform the future

13 International Journal of Research in Computer Applications & Information (O) 2347-5099 ISSN Technology, Volume-4, Issue-4, July-August, 2016, www.iaster.com (P) 2348-0009 conduct of financial institutions in ebanking and electronic payments delivery” (Central Bank of Nigeria, 2003). In the report (Adewuyi, 2011), the author claimed that automation of banking operations was really challenging to the Regulatory/Supervisory authorities in Nigeria. He itemized these challenges as: (i) Money Laundering (ii) Fraud (iii) Electronically Generated Evidence (iv) Consumer Protection (v) Job Cut (vi) Possibility of Core Business Being Swallowed and (vii) Systems Operational Risks. The paper was titled “way forward”. It was expected that there would have been some measure to solve some of the itemized problems but there was nothing substantial to make it a way forward apart from suggestions.

The work of Shashank Kajaria (Kajaria,2009) provided the platforms that were required to effect an electronic cheque banking system in India. He compared the situation in India with that of the United States. However, there was no description or illustration of the actual realization of a system on electronic cheque banking system. A similar specification was made from a global perspective by Mohit Mehrotra in (Mehrotra, 2014). A presentation (Bajwa,2005) on “Cheque Truncation- Business Opportunities” revealed the opportunities in electronic cheque system based on the requirements in India from the perspective of a banking manager. The technologies behind these propositions were merely scanners and printers without the considerations for the flexibilities in smart phones and the likes. Similar assertion was also elucidated in (Sharma and Modi, 2014).

3. CONSIDERATIONS IN T+0 SYSTEM

The introduction of customer-end to the process of cheque truncation was conceived to make the system more efficient. The integration of a mobile user application would increase the participation of the customer in the initiation of the process. The system was also designed to comply with the Central Bank of Nigeria regulation for mobile payment covering customer registration and management, customer service and dispute resolution procedures to transaction settlement finality.

This system allowed customers to deposit their cheques from their smart devices through digitization. Thereby, the cheque digitalization process starts from the mobile device. For this study the system design focuses on the creation of the mobile application that is native to android operating system target sdk 16 and above. The mobile application take the front and back of the customer cheque. The new system aids the customer in verifying the cheque. In this system a Push-based generates a credit transaction when the image is certified. The payee holds on to the physical cheque while the digital copy is forwarded to the banks clearing house. The mobile application synchronizes with a web services at the clearing house to valid and verify the cheque.

The web service infrastructure already exists at the national switch and inter-bank settlement system, to facilitate the settlement finality of payment through the CBN Inter-Bank Funds Transfer System (CIFTS) infrastructure. The web service simulates the payment to the end users. The rules and regulation to provide such an operation are detailed below. This method is the same as in the old system. The automated clearing house also facilitates the process of debit card and online bill payment. Our model takes advantage of these facilities to propose a system that makes cheque transaction possible the same day. The benefits of the new system includes (a) Shorter clearing cycle (b) Superior verification and reconciliation process (c) No geographical restrictions as to jurisdiction (d) Operational efficiency for banks and customers alike (e) Reduction in operational risk and risks associated with paper clearing

4. REALIZATION AND SPECIFICATIONS

Two main issues involved in the specifications are (a) functional requirements and conceptual designs.

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Functional Requirements

User Login with a secure password Application verify that User Images must be registered GSM encrypted phone number

T-0 system

Validation Front and Back response of the image message must must be be sent to the captured application Amount on the cheque must be typed and the generated transaction code

Figure 1: Requirements in the system Conceptual Design

The output design of the mobile application system will conform to the following standards which are, for front side, grey scale 100 DPI 8 bit (256 level) in JFIF format with JPEG compression, and front and back bi-tonal (black and white), 200 DPI TIFF image. Compression techniques used are jpeg for grey scale image and CCITT G4 standards for the bi-tonal. The image quality assurance is required at the scanning stage so that the images meet the processing quality standards. The image specifications are as follows:

Image Type Minimum DPI Format Compression 1 Front Grey Scale 100 DPI JFIF JPEG 2 Front Black & White 200 DPI TIFF CCITT G4

The background of the cheques should be image-friendly (There should be no dark background).

Input Design

The input design centers round the preprocessing of the cheque using a mobile device. The physical cheque is capture with a mobile device by the customer or payee. The captured image is then is preview, verified and authenticated. The verification of the amount is carried out at this stage: The two fields for writing the value of the cheque named legal and courtesy amounts are intended for redundancy. In case of a disagreement, the legal amount is selected. However, a disagreement between legal and courtesy amount shall be an indicator of amount alteration. The first field (legal) contains the amount written in words, and the second field (courtesy) contains the amount written in numerals.

Also, the process verifies the cheque captured has the name of the customer depositing it. The location and time the cheque was deposited will be taken. To validate the information on the image an Image Quality Assurance (IQA) is done. The image resolution is checked to conform to the CTS standard in the output design.

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Figure 2: Flow of Actions in the System The Registration Process

The process enables the user to create an account, a username and a password. The credentials validates the application user session. To create a user account; the user enters his/her email account as the username and create a password. After the creation, the validation process is done to ensure the user email has the same phone number as the one on the banking page.

The Deposit Process

The user captures the front and back of the cheque. The captured images are previewed on the application to ensure satisfaction. The user is required to enter the amount on the cheque and the select the paying bank and the transaction is submitted.

User Interface Design

User Interface (UI) and User Experience (UX) are essential part of our software design. The UI give the user an insight to the application. It provided a fundamental platform for human computer interaction. The concern has to do with how attractive, user friendly, efficient and consistent the application is. The application UI was designed with the application resource layout and was styled with shapes and icon to enable user understand their appropriate function. The following are some of the application UI.

Figure 4: Registration Form

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Figure 5: Sign in Form Figure 6 : Deposit Tab Selected

Figure 7 : Camera Preview Figure 8: Submit Form

5. CONCLUSION

A complete cycle of the cheque truncation system has been done on an electronic platform. Sample tests and evaluations were carried out in line with banking rules. Specific security measures were also followed to reduce the inherent flaws. Recommendation is made to further enhance other possible security problems. This is important bearing in mind the peculiarities of Nigerian banking sectors. Specifically, internet and mobile banking combining cheque system was developed on web services transactions that is able to reduce the banking system to a T-0 model.

The exact percentage share of check based and cash based transaction made in Nigeria cannot be easily equated. Upon the efforts of the central bank of Nigeria to reduce the rate of cash transactions, the rate of cash based transaction is still very high. Most people often find cheque as an alternative to cash based payments. The need to either draw the cheque or deposit it has is a genuine reason for people to make their other bank related transactions in their respective bank hall. Although, the introduction of a cheque deposit application on customer’s mobile device may not be different from the online/mobile banking. The integration would be a medium to increase the customer opportunities in reaching their banks and further increase the level of mobile banking participation in the country. The Nigerian banks have been prepared for the T+1 process, however it has not been effectively integrated to mobile application interface to enhance the already available infrastructure. The mobile architecture

17 International Journal of Research in Computer Applications & Information (O) 2347-5099 ISSN Technology, Volume-4, Issue-4, July-August, 2016, www.iaster.com (P) 2348-0009 proved to be secured for bank related transactions with the increasing rate of payment transaction that cut across various sector such as; business to business, customer to business. The level of adoption in most countries around the world is relative.

6. RECOMMENDATION

The idea of electronic cheque system would be a jargon with no customer participation in the cheque truncation system. Today, it is no news that epayment system has being helping to bank the unbanked communities in most countries of the world. “Prepaid cards are particularly interesting, because the funds are actually on deposit at a regulated financial institution, but the process of establishing and managing accounts is much more cost effective and less risky that traditional debit accounts for smaller levels of deposit” (Commonwealth Business Council & Visa, 2004). Every bank custom in Nigeria with entitlement to a debit card most people still prefer to issuing cheque as a physical evidence or proof of payment due to the increase in the rate of cyber related crimes.

The success of the T+0 system is feasible but will require a lot commitment from the bank and the automated clearing house. However, this project work proposes a method that if adopted would aid the T+0 model without recycling the present infrastructure or standards required in the implementation of cheque truncation. The benefits of this process cycle would attract little or no additional hardware to the implement and it would be highly appreciate in remote areas of the country or the unbanked communities. It would also aid some of the existing measure of CBN PSV(2020) like the implementation of cardless transaction at the ATM points, customers can deposit cheque on their mobile device and draw cash or pay bills at the ATM point without physically visiting the bank.

REFERENCES

[1] Adewuyi, I. D., (2011), Electronic banking in Nigeria: challenges of the regulatory authorities and the way forward, International Journal of Economic Development Research and Investment, Vol. 2 No. 1; April 2011. 149, http://www.icidr.org/ ijedri_vol2no1_april2011/ Electronic Banking in Nigeria Challenges of the Regulatory Authorities and the Way Forward.pdf [2] Bajwa, K.S., (2005), Cheque Truncation- Business Opportunities, http://www.iba.org.in /events/Cheque Truncation - Business Opportunities_Mr. Bajwa.ppt [3] Central Bank of Nigeria, (2003), Guidelines on electronic banking in Nigeria, August, 2003, http://www.cenbank.org/out/publications/bsd/2003/e-banking.pdf [4] Central Bank of Nigeria, (2013), Payment System Vision 2020, http://www.cbn.gov.ng/ icps2013/papers/Nigeria_Payments_System_Vision_2020%5Bv2%5D.pdf [5] Mehrotra, M., (2014), Digital Transaction Banking: Opportunities & Challenges, Deloitte Consulting, Deloitte Tech Trends 2014, http://www2.deloitte.com/content/dam/Deloitte/ sg/Documents/financial-services/sea-fsi-digital-transaction-banking-noexp.pdf [6] Kajaria, S. (2009), Cheque Truncation System in India, http://www.indianmba.com/ occasional_papers /op198/op198.html [7] Mastercard and Visa (1997) SET Secure Electronic Transaction Specification (V1.0) Book 1, http://www.maithean.com/docs/set_bk1.pdf [8] NITDA, (2009), Electronic transactions bill, http://www.nitda.gov.ng/documents/ Electronic Transaction Bill.pdf, consulted 20 August 2015 [9] Sharma, A. and Modi, G.N.(2014) Cheque Truncation System in Banking Industry, Global Journal for Research Analysis, Volume-3, Issue-9, Sept-2014 • ISSN No 2277 – 8160, http://isindexing.com/isi/papers/1410944390.pdf [10] xDTM, (2015), xDTM Standard Association, http://www.xdtm.org/, consulted 20 August 2015

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