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Inward Cheque Clearing Process

The paperless environment has progressed and flourishing now. Nowadays, financial institutions constantly improve the choice of the merchandise and services to succeed the customer. Furthermore, this is actually the era where banking companies make an effort to become excellent provider by exceeding customer's expectation. With electronic documents allow a corporation to save lots of time, increasing efficiency and providing excellent customer support. Hence, imaging technology provides required program that needed to achieve this competitive advantage.

Check clearing process in Malaysia has improved from paper pushing to paperless. Day by day, customer deposit and issue out bank checks. Despite many repayment methods available in Malaysia such as Internet bank, mobile banking, Interbank GIRO, Rentas (Real Time Fund Transfer System) and more, check tool remains an important repayment method used in Malaysia.

According to the statistic from Standard bank Negara Malaysia (Malaysian Central Bank), it is apparent that check payment is the most preferred payment method now and in times to come. Although there is sign of decline from 12 months 2007 onwards which is due to an introduction of electronic banking, but cheque will remain high as the cash movement exceeded trillion. Consequently, BNM has executed Cheque Truncation and Cheque Conversion (CTCS) process on 16th June 2008 where all espick participants duly carried out and in procedure since that time.

Manual Processing

Image-based cheque clearing process, replaces the physical cheque move with electric data and image movement throughout the clearing pattern. The process minimizes the movement of the physical cheque from various intermediary levels in the clearing process and hence, reduces the delays in the clearing process. Ideally, the motion of the physical cheque should visit the bank/branch of first deposit (The collecting standard bank branch). This, in return, increases operational efficiency through expedient payment and receipt of funds, reduces the functional cost through the lowering or redeployment of redundant resources used for handling cash and cheques, and expedites the clearing process on the market.

Due to CTCS introduction, the physical cheques will be kept by the collecting bank or investment company after their images and MICR ( Magnetic Ink Figure Recognition(MICR) code collection data have been captured and the readability confirmed. To guarantee the quality of images that have captured, cheques will be required to adhere to image friendly design benchmarks and specifications. Electronic imaging places new need on the entire design of cheques so that they are immediately legible when taking a look at their images, as opposed to the physical cheque itself. The look standard must ensure that all essential information, including hand-written data and machine-printed date, will be captured by the imaging process. The captured images will be usable and legible, and that the file sizes of images will be small enough so that they can be stored and shifted in an expense justified manner. Furthermore, check truncation has been integrated in many countries like US, Singapore, Sri Lanka and Hong Kong.

Due to bank secrecy, the name of the lender that will be found in this statement is Kaybank Berhad. This is an international loan provider with 11 branches in Malaysia which is mainly in urban and semi metropolitan area. Hence, this bank has huge customer base including consumer and corporate and business business.

There are 4 types of functions for cheque clearing

Inward Cheque Clearing

Kaybank cheques

Outward Returned Cheque Clearing

Kaybank cheques that need to be delivered due technical error, stop repayment or inadequate funds

Outward Cheque Clearing

Other bankers cheques deposited at Kaybank

Inward Returned

Other bank's returned check scheduled to technical problem, stop repayment or inadequate funds

The author will discuss about the Inward Clearing process in this record as it is an important process and high in volume. You can find cut off time to complete the process within BNM clearing windows (1. 00pm) daily. And resources required to perform this is high. Attached is the process of Cheque Clearing for the industry.

Process Circulation of Cheque Clearing

Source : www. myclear. org. my

To elaborate further upon this process, if a customer transferred a Kaybank Cheque of RM 20, 000. 00 into his/her profile at Citibank, the image and the info of the check will be sent to Myclear (Subsidiary of Bank or investment company Negara Malaysia) via a gateaway system (NWI). Foundation on the MICR data, the said consideration will be debited of RM 20, 000. 00 and the money will be acknowledged to customer's account with Kaybank. In this case, the collecting lender will be Citibank and the paying lender will be Kaybank. The turnaround time for the availability of cash is 2 days.

Process Map for Inward Clearing process at Kaybank

Image Verify


Data transfer to Check verification System

Download of Inward file from Myclear

Upload of espick data to Kaybank system

Reject the image Yes


Second level checking



Reversal of customer's account

Upload Returned document to Myclear

Performance Objectives

Kaybank's key strategy is to develop their Consumer business and Corporate business. The buyer business division consistently invests in services and service innovations to increase its presence in Malaysia and expand its private banking segment. However, its Commercial business has a center group of customers to which Kaybank leverages global presence to provide excellent quality financial products and services. However, both businesses have is constantly on the enhance the customer experience. It has additionally improves functional efficiency by constant reengineering programs.

The main objective of Cheque Clearing Unit is to aid both businesses by delivering brilliance service to the customers by handling their Current Accounts with error free and also to manage operational cost effectively. By shifting to CTCS process, Kaybank has increased the performance objectives of operation in clearing process as follows;


Banks are sacrificing million of money credited to scams cheque. With CTCS process, banking companies reduced the deficits tremendously as the responsibility to pay in case of scam check has been shifted to collecting bank. The collecting loan company must check under the Ultra Violet and the security features on the check and label the item if it is fraudulence to preempt the paying lender.

System is managed by Myclear and quarterly screening been conducted to ensure no vulnerability of the machine. Continuity of business plan has been set up in the event there's a crisis credited to network issues or others.

Automation where cheques been automatically debited by the machine instead of manual publishing.

Straight through processing been achieved where no manual invention is necessary.

Reduced customers problem on lacking cheques when mailing out as maybe it's lost in transit. Now, with image base came back item, customer can't use back again the same cheque for representment.

Data data file will be encrypted before sending files to respective branches or clearing house.

High security features set up and files dispatched or received wouldn't normally be affected.

Better reconciliation and scams prevention


Customers are happy as float days of cheque was reduced from 8 days and nights to 2days. And house check payment is given an instantaneous credit.

Under the manual environment personnel must perform 500 physical cheques verification for 5 hours but with CTCS each staff can perform 750 checks in 4 time.

Customer's claims will be settled in a day as under the manual environment it takes 3 times.

Staff efficiency increased and doing multi tasking.


Staff overtime has been reduced enormously and having quality time using their family. Manual process requires 12 working time for each personnel compare to just 8 hours now. Calculation of keeping are the following:

Cost keeping on Overtime = 30 Personnel x 4 hours

= 120 hours a days x 23 days

= 1760 x 22. 50 per hour

= RM 39, 600. 00 per month

Hence, for month the lender has saved an roughly RM 39, 600. 00 in overtime scheduled to CTCS process.

Cost of purchasing the system is merely one time and maintenance and licensing hire is lower compare to physical cheques management.

Staff transport statements and meal allowances were reduced to none of them as theay are not required to work long hours anymore.

No shipment of cheques to Clearing House is necessary now anticipated to transmission of data.

There are 30 staff been employed recently to manage inward clearing volume of 40, 000 daily but now only required 18 staff. The other 12 staffs were redeployed.

Retention amount of cheque is only per annum under CTCS as compare to 7 years previously. Daily a total of 40, 000 cheques processed daily and requires 10 boxes to put the cheques. The saving calculation is really as follows;

= 10 containers x 23 working days

= 230 containers x 2. 50 monthly storage area per box

= RM 575. 00 x 12 (months) x 6 (Years)

= RM 41, 400. 00

Hence, for month the lender has saved an around RM 41, 400. 00 due to CTCS process.


Maintain Audit Log where it displays the user details and accessibility

Prepares or generate MIS report for volume monitoring as well as for departmental budget planning.

It is also a core banking system online method of publish or download data or batches.

Interfaces with inside and external system like personal verification system, Cheque first deposit Machines and clearing house.

It has provided centralized cheques clearing control and encouraging branches from Penang and Johor Bahru where recently under difference clearing zone.


Customers are happy with the service as their cheques are now safe from fraudsters.

Inward Clearing process is easy and the staff is capable of doing multi function and deliver good quality of are they are not necessary to work long hours.

Each transaction under CTCS is controlled by Unique Identifier Code (UIC) which really is a unique reference number printed on the back of the cheque by the collecting bank and it will make the retrieval for inspection advertising presenting of unpaid items are easier.

Better controls founded anticipated to simplified process and augmentation and will not lead to financial losses or customer issues.

Cheque Verification System

Kaybank has invested in a E-flow system for check verification. This system is supported by in house Technology team. Once Inward Clearing data downloaded from the Gateaway system, it'll be downloaded to the E-flow system for verification. Each workstation will have an individual Central Processing Device (CPU) and 2 monitors. One to view the image and the other monitor is to display the signature. You will find 7 types of cheques prepared and each will have a different process and approach. Hence, images and MICR data downloaded to E-flow system and can get sorted and route to the individual place. For control goal, the main function for this system is display the image for confirmation goal and reconciliation. Kaybank has also emphasized on second level verification for several threshold to avoid any blunder done by the first level verifiers.

However, there are a few flaws in this system the following;

The system has limited products. As of now, the machine was designed to accommodate 7 products and when there is yet another product on the market and Kaybank wanted to implement it, there will be an issue. It may blend up with other products.

If a specific product it to be ceased, then the station will be continue to be there. For example, VISA OR MASTERCARD cheque has been stopped by Kaybank scheduled scams vulnerability since Septemeber 2010. The train station is there and it can't be removed as it could involve cost.

Any changes or addition into this technique involve cost and it is expensive.

Tagging of investigations as improved by the collecting loan company is subject to readability of the individual who verify the said cheque. Hence, the CTCS ruling astablised by myclear is unclear. Since it is put through apparent alteration look by the processor. In the case, the cheque has been cleaned and improved and the alteration on the check is not clear, then the collecting standard bank is not responsible for the losses. In turn, it'll be shifted to the paying bank to pay the losses. This guideline in unclear and it is not good for the industry.

Inward Clearing Quantities from January 2010 till October 2010

Source : Internal MIS for Inward Clearing Transactions

Emerging Technologies

On the other palm, cheque scams costs Malaysia millions of losses each year and reveals severe troubles to the industry. Hence, a better system must be deployed for the effectiveness of the existing process. Payee Match Positive Pay Request technology has recently were only available in U. S as it originated by Parascript, LLC, Niwot, Colorado, U. S. The primary objective of the system is to fight cheque fraud. The machine is designed to read a cheque's payee brand information and combination validate the info provided to the lender by the client via Cheque Issue File. This technique assures reliability and significant reduction of check fraudulence. Furthermore, with if this technique should be executed, funds can be produced available in T + 1 (One day Clearing). In the event the adoption of this technology is possible, they will be no impact to the process as it works the same and the only real difference is the system. Discussing the projected size, for product like Paylink, Administrator Check, Repayment Order and also to some extent corporate and business customers the verification can be programmed. Since companies upgrade Kaybank with their list of the cheques issued out the beneficiary, this system can perform automobile match and approved the purchase without manual treatment. The machine could be costly but in long them, you will see no scams cheque.

Genichi Taguchi (Nigel Slack, Operation Management), has highlighted to test the robustness of any design to ensure it withstands any change. However, in this case the changes only impact the system as all verifiers need to confirm some quantity of cheques daily. The terminal is stationed at their individual workstation. Hence, there is absolutely no impact on the work design, structure and movement or procedures. Although, the volume will decrease somewhat much like current capacity, personnel might need to verify cheque smaller. Alternatively, with the execution of new system, personnel should be trained plus they could be mistake prone as this will be totally a fresh system.


With regards to the system augmentation, Myclear as a regulator should take the lead and supervise clearing process. Internally, Kaybank may in a position to deploy a good system but Positive Pay system is very new and extremely expensive where a single bank or investment company will hesitate to buy the system. However, with the involvement of Myclear and everything member banking companies, all should talk about the price to bring the system to Malaysia to develop jointly. With this, the price will be cheaper and can be affordable and everything the intermediaries will have a typical platform to work with.


Although, the current system deployed by Kaybank is reliable, you will see no guarantee when the fraudster will attack the banking industry with their sophisticated solutions. Hence, BNM, Myclear, ABN (Relationship of Lenders) and member finance institutions must follow other option to prevent fraud look at by the fraudsters faster. The Police too have to amend laws and regulations to draft severe consequence to nab the fraudster.

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