Hong Kong General Chamber of Commerce
Financial & Treasury Services Committee Roundtable Luncheon
Mr. Shu-Pui Li
Head, Financial Infrastructure Development Division
Financial Infrastructure Department
Hong Kong Monetary Authority
23 June 2014

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 Key drivers for the development of e-cheque
 Nature and benefits of e-cheque
 High-level operating model
 Security features of e-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)
 Paper based meaning not environmental-friendly
 Not convenient to use as it requires physical delivery and presentment
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 e-cheque: issued, delivered and presented electronically
 Key features:
 bill of exchange under the Bills of Exchange Ordinance (BOEO)
 non-negotiable and non-transferable
 digitally signed by payer and certified by payer’s bank
 support HKD, USD and RMB denominated e-cheque
 Target launch date: 2H 2015
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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
 carry enhanced security features
 remove the costly and manual processing of paper cheque
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 Possible to expand to cross-border usage in the future
 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)
Payer
4B
Alternatively, payer can send e-cheque to payee via email (if payer wishes to send echeque to payee, probably together with other documents)
Digital signed e-cheque
Payee
4A
Send e-cheque to payee by payer’s bank by email
1 through
Internet
Banking or other authenticated means
Request for issuing e-cheque
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Digital signed e-cheque
Digital signed e-cheque
Digital signed e-cheque
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Present e-cheque through
Internet
Banking or other means
2 Create e-cheque
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Verify signature, internal records and check for duplicate presentments
Payer’s Bank
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HKICL
Inward clearing file and signed e-cheques
Clear and settle e-cheque
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Outward clearing file and signed e-cheques
Payee’s Bank
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Verify signature, payee identity and credit deposit
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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)
Payer
4B
Alternatively, payer can send e-cheque to payee via email (if payer wishes to send echeque to payee, probably together with other documents)
Digital signed e-cheque
Payee
4A
Send e-cheque to payee by payer’s bank by email
1 through
Internet
Banking or other authenticated means
Request for issuing e-cheque
3
Digital signed e-cheque
Digital signed e-cheque
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Present e-cheque and input payee’s bank details through centralized portal
2
Create e-cheque
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Verify signature, internal records and check for duplicate presentments
Payer’s Bank
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Verify signature
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Inward clearing file and signed e-cheques
HKICL/
Centralized
Presentment portal
Clear and settle e-cheque
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Outward clearing file and signed e-cheques
Payee’s Bank
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Verify payee identity and credit deposit
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Link to animated video
Link to prototype demo
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 Virtual cheque book: Avoid unauthorized access to cheque books
 2 factor authentication (2FA): Protect bank customers from internet banking fraud
 Digital signature using PKI technology : Ensure the integrity of echeque
 E-cheque issuance records: Allow payer bank to check the presented cheques against its own issuance records
 Centralized presentment service: Guard against duplicate presentment
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 E-cheque will be signed using the digital certificate issued by one of the recognized Certification Authorities
 Two types of digital certificate can be used:
 General purpose or personal digital certificate
 Safe kept by the owner; can be used for all purposes
 Special purpose digital certificate
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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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 System development under way
 Based on survey results, most retail banks have indicated interest to offer e-cheque service to their customers
 Marketing campaigns will be organised closer to the service launch
 Overall speaking, the project is progressing as planned
 It is our target to launch the service in 2H 2015
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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 processing efficiency due to automation
 Possible cost saving for bulk cheque issuance
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The benefits of using e-cheque substantially outweigh its costs!
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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
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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
IPO refund cheques
1-2 days after refund day due to postal delay
Shorter time needed to receive e-cheques (i.e. likely for them to receive e-cheques on refund day)
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Paper cheques
From corporates’ perspective
Substantial efforts needed Efforts needed to do reconciliation (e.g.
checking against invoice amount and due date)
Presentment cut-off time
E-cheques
Minimal efforts needed
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
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