Jordan Goes Live with Real-time Check Clearing

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Ever since checks were introduced as a payment method, check clearing has been handled in the same primitive manner. Yet, because of their convenience, checks remain an extremely popular way to carry out transactions. Paper-checks will undoubtedly be a part of our financial landscape for a long time to come, but as payment technology continues to improve, the speed and ease of clearing and settlement are quickly transforming the way we conduct our daily business.

In line with such developments, several countries have taken major steps towards upgrading the technology of their payment systems. Jordan joined in this transformation and was one of the very first countries in the world to embrace a contemporary real-time electronic check clearing system nationwide.

Following its commitment to modernize the Jordanian financial system, the Central Bank of Jordan (CBJ) was one of few pioneers in the region to appreciate the potential of digitizing the check clearing process. In December 2004, the CBJ awarded the Electronic Check Clearing contract to ProgressSoft - a Jordanian company with a proven track record in technology-driven innovations - making Jordan the second country in the world to adopt such a solution worldwide. An online system was deployed in all 24 banks and their branches to convert paper-based checks to electronic files that can be promptly transferred between all involved parties. Accordingly, the CBJ incorporated an electronic upgrade across all banks, addressing the inefficiencies resulting from paper-based manual clearing that used to take place in the country before July 5, 2007.

"The new e-clearing system translates into a genuine breakthrough as checks are now being regarded as a real-time payment method like other payment media such as SWIFT, Direct Debit, ATM, Credit and Debit Card transactions," said Michael Wakileh, Chief Executive Officer of ProgressSoft.

The Solution - How it Works

Electronic Check Clearing (ECC) is an electronic image-based check clearing solution, designed to provide end-to-end nationwide clearing of checks within seconds of deposit. The ECC provides the means to electronically transfer check images and completely replaces the traditional physical routines of moving paper-checks between the banks and the clearing house.

"With the new system, traditional physical movement of paper-checks occurring daily between banks and the CBJ is replaced with a digitized transfer of check images that can fulfill all clearing and settlement purposes," said Faris Sharaf, Deputy Governor of the Central Bank of Jordan.

In a nutshell, the solution captures check images at the earliest point of deposit (the bank branch), and transmits images and corresponding data to the Paying Bank through the ECC House at the CBJ. Consequently, checks are technically and financially approved by the Paying Bank, upon which a reply message is sent back to the Receiving Bank through the CBJ for inter-bank settlement transactions to take place, resulting in immediate depositing of the amount in the beneficiary's account.

Since delivery of physical checks will not be required anymore, a considerable amount of operational expenses incurred by the manual system are now eliminated, including the cost of transferring paper checks between banks. Effort and manpower savings will be achieved, as no more bank representatives are required to attend daily clearing sessions. More importantly, the time needed to collect money from deposited checks will now be completed within minutes.

"The project is initially undergoing a transitional phase with expedited clearing of T+2 value date. The system will start performing at full potential, reaching a T+0 clearing schedule by September," Sharaf added.

Benefits of Electronic Check Clearing

ECC primarily allows you to shorten the check clearing cycle from three to five days under the old manual system, to same day (instantaneous) clearing. The considerably shortened clearing cycle naturally brings about an increase in cash flows, leading to earlier availability of funds to the depositing parties. This reduction, in turn, increases profit margins, allows for better fund management and improves economic performance.

Jordanian banks stand to enjoy an impressive set of tangible benefits, too. The new technology reduces the tedious and time consuming manual method by 65%, while availing funds at the beneficiary's account within the same day of depositing the check.

As no physical check movement is required, unfortunate scenarios of check loss, delay or damage can be completely avoided. "Benefits that are provided by the system will undoubtedly streamline the bank's operations and remove all threats pertaining to the check handling process and manual mistakes" affirmed Bassam Elayyan, IT Manager for the Islamic International Arab Bank. "Operational costs within the clearing unit will surely decrease while employee efficiency increases", he added.

One crucial effect that is likely to be felt by the Jordanian public is the positive impact on losses resulting from "bad checks"; ones written with no sufficient funds. Over the past couple of years, the total volume of checks presented for clearing increased by over 30 percent. In 2006, alone, almost 11 million checks were presented for clearing, with a total value of over JD 26.5 billion. Of those, around 430,000 checks valued at close to JD 800 million were returned due to either insufficient funds or other technical reasons (such as missing date, differences between words and numbers, and poor quality, just to name a few) With the coming on-line of the ECC, instant processing and early detection of bad checks should dramatically reduce the number of returned checks in the country.

In addition, the transition to the e-clearing practice with a same-day value schedule accelerates availability of bad check information and fraudulent item detection. The system provides a comprehensive database and a vast capacity archive of check images that can be used for analytical and legal purposes for all those concerned. This highly secure environment would ultimately result in leveraging the confidence of the check payment instrument and credibility of Jordan's financial system more broadly. "Using the new system results in minimizing check fraud as well as bad quality and returned checks. With transparent information between banks, improved credit rating can be achieved." concluded Hadil Kayyali, Deputy CEO, Head of Group Operations at Jordan Ahli Bank.

Covering all banks and branches in the country, this massive project realized the biggest installation of such a system in the Middle East and North Africa. As of July 5th 2007, the CBJ, together with the Jordanian banking sector and ProgressSoft, put the final touches on a major achievement reflecting the potential and promise of Jordan's financial and technological sectors.

[About the Central Bank of Jordan]

Jordan set out preparations to establish the Central Bank of Jordan (CBJ) in the late 1950s. The Law of the CBJ was enacted in 1959. Thereafter, its operational procedures were commenced on the first day of October 1964. The CBJ succeeded the Jordan Currency Board which had been established in 1950. The capital of the CBJ, which is totally owned by the government, was increased gradually, from one million to 18 million Jordanian Dinars. The CBJ enjoys the status of an independent and autonomous corporate body, although its capital is owned entirely by the government.

[About ProgressSoft]

Committed to a boundless aspiration towards innovation since its inception in 1989, ProgressSoft has been focusing its proficiency in imaging technology to deliver an impressive suite of intelligent solutions to the financial world. Today, ProgressSoft has consolidated its position as the new household name in the banking industry, claiming an active role in shaping the future of a technology-driven era of electronic financial services.

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