Video describing the new process
The Electronic Check Clearing Law, which was passed by the Knesset in February 2016, enables the transition from physical check clearing to electronic clearing. In the existing process, each check must be physically sent from the bank where payment is being collected to the bank on which the check is drawn in order to complete the clearing process.
The Electronic Check Clearing Law has very significant ramifications on the clearing process. The physical checks will be stopped (truncated) at the bank where the check is presented for payment, where the checks will be photographed, and image files of the checks will be sent to the paying bank. The physical checks will no longer need to be kept for years as they are today.
The law will be implemented in two main stages. The first stage, which begins today, makes interbank clearance of checks possible for checks deposited through the mobile application. (Until now, it has been possible to deposit checks via the application only if they are drawn on the same bank.) This services is provided by most banks[1]. Mobile deposit will be enabled for checks labeled “To the beneficiary only” and up to NIS 10,000 per individual check.
This process makes it possible for bank customers to deposit checks without physically coming to the branch, and to increase the use of advanced electronic services, through the banking applications offered to them. Mobile deposit of checks also reduces the cost of depositing a check by up to 75 percent (cost of depositing a check through a customer-executed transaction compared with through a teller-executed transaction).
This process makes it possible for bank customers to deposit checks without physically coming to the branch, and to increase the use of advanced electronic services, through the banking applications offered to them. Mobile deposit of checks also reduces the cost of depositing a check by up to 75 percent (cost of depositing a check through a customer-executed transaction compared with through a teller-executed transaction).
The main points of the Electronic Check Clearing Law:
ü Regulation of the return of checks that are not honored—Should a deposited check not be honored (for instance, due to insufficient funds), the customer will, at his request, receive a Output of a returned check in order to continue the collection process through the Enforcement and Collection Authority.
ü Regulating the admissibility of the digitized check in legal proceedings—An Output of a returned check will be considered a check for all intents and purposes, and will constitute admissible evidence to prove the veracity of its contents in any legal proceedings.
Irit Mendelsohn, Director of the Accounting, Payment and Settlement Systems Department at the Bank of Israel, said, “The accelerated technological developments of the past few years have not left the payment systems field behind. They make it possible to advance the market to more advanced, convenient, efficient and secure systems. The Bank of Israel is leading the technological revolution in means of payment in Israel, understanding the importance of regulation in order to ensure that the advantages inherent in technological improvements are maximized, and that the risks are minimized, all while maintaining the stability of the payment systems in Israel. The implementation of the Check Clearing Law—a significant revolution that will be felt among the public—is a main component of this process.”
Ronit Chitayate, Head of the Payment and Settlement Systems Division at the Bank of Israel, and Chairman of the Bank Clearinghouse Committee[2], said, “The Electronic Check Clearing Law was made possible thanks to the cooperation, professionalism and investment of the Bank Clearinghouse Committee members, including the Bank of Israel and the banking system. Within this framework, the Bank Clearinghouse Committee was required to handle the establishment of infrastructure for the transfer of check image files, to define the new business processes, and to update the clearinghouse rules accordingly. The law advances the check clearing process in Israel, and brings it to the level commonly accepted in the advanced world. These are significant changes, both in terms of technology and in terms of business, as part of which the check clearing processes and the storage and retrieval processes are being updated. The banking system is also advancing innovative business initiatives to allow the customer to photograph checks with a smartphone and send the picture electronically to the bank, which will provide the customer with a variety of clear advantages, including: reduced transaction cost, speed of payment, documentation and monitoring of transactions made digitally through electronic means of payment, and ease of use for the customer—who pays or receives payment—as well as availability of payment to the customer.”
[1] Bank Hapoalim, Bank Leumi, Arab-Israel Bank, Israel Discount Bank, Mercantile Discount Bank, Bank Mizrahi-Tefahot, First International, Otzar Hahayal, Massad, UBank, Poalei Agudat Yisrael (PAGI).
[2] The Bank Clearinghouse includes the Paper-based Clearinghouse (Checks) and Masav. It is managed by the Bank Clearinghouse Committee, which includes representatives of the Bank of Israel and of the banking system. The Bank of Israel manages the committee. In this framework, the clearinghouse rules are set and changes and reforms in the field are advanced.