features

Raqmiyat has completed deployment of a new system for cheque

clearing for HSBC Bank in the UAE. The system integrator's ICCS-
Connect solution, which is also set for deployment with over 30 other
banks in the UAE, aims to improve the speed and efficiency of the
cheque clearing process.

The Image Cheque Clearing System (ICCS) has been mandated by the
UAE Central Bank to improve payment handling processes in the
country. Raqmiyat says it has signed contracts with around 80% of
banks in the UAE to supply its ICCS-Connect to enable them to
implement ICCS.

The solution has been developed by Raqmiyat based on hardware and

software from Unisys and Aperta. The system captures an image of
the cheque, along with electronic data, which is then used in all
clearing and storage processes instead of the physical cheque itself.

The system also promises to cut costs related to physical clearing of

cheques as well as improve reconciliation and fraud prevention.

"We are glad to announce the successful implementation of ICCS at

the HSBC Bank, one of the most modern, dynamic and customer-
focused banks in the UAE. Not only will our solution help the bank in
improving throughputs, it will also help in shortening their clearing
cycles in the long run, and in facilitating a centralized image archival
system for efficiency in operations. The new system will streamline
the cheque clearing process, giving customers faster access to their
money. It will also improve system reliance by reducing reliance on
transportation networks and will help fast track the delivery of
customer services," said Tapas Roy, CEO, Raqmiyat.

"Regional spending has been growing and this presents an excellent

opportunity for growth. As part of our program to take advantage of
the burgeoning market, we have developed a new solution that offers
a host of short-term and long-term benefits for banks and customers.
Banks will particularly benefit with substantial cost savings as
expenses incurred in archiving, storing and transporting documents
can be drastically reduced," added Roy.

Cheque clearance

Overview
Since 1999, banks have adopted a system to allow faster clearance of
cheques.
By electronically transmitting some information about a cheque, the normal
clearance time was brought down by at least two working days.

How does it work?

Before April 1999, processing had generally required five working days
before a customer had access to cleared funds from a cheque.
Until the introduction of the new system, a cheque had to be physically
transported to the paying bank before processing began. If it was
dishonoured, it was physically returned.
Cheque particulars are now transmitted electronically so that processing can
start before the cheque arrives at the paying bank. This speeds up the
clearance process, giving customers faster access to their money.
So, if customers deposit a cheque on Monday, funds will normally be
available on Thursday at the latest, instead of the following Monday.

Why hadn't this happened before?

It was only with the widespread use of computers that faster processing of
cheques became feasible.
Cheques are a paper-based system of payment that existed long before
electronic computers were invented.
The challenge was to develop a new system which balances the speed of
electronic banking with the demands of customers to retain a paper trail. The
project, involving banks and the Australian Payments Clearing Association,
took some years to develop, and nine months to test and implement.

In an electronic age, why does it take three days?

While some data is being transmitted electronically, cheques as a payment
instrument remain a paper-based system.
This means we still have the limitation of requiring the physical
transportation of a document from one branch to another.
The electronic transmission of data enables banks to quickly ensure there are
sufficient funds available, but a cheque could still be dishonoured if it:

has been stopped by the payer;

is forged;

has been materially altered;

is reported lost or stolen; or

is subject to a court order restraining payment.

Have all cheque clearances been reduced by two working days?

The overwhelming majority of cheques are being cleared in the shorter
period.
There will be instances however in which clearance could be delayed.
This could include examples where there is doubt over the bona fides of the
cheque, where it has not been signed or where the computer identification
codes on the cheque are damaged or missing.
There could also be some delays where a remote branch or agency is
involved.

Does this mean interest will be earned sooner?

Customers can earn interest on the funds immediately, even if they cannot
withdraw the funds.
When a cheque is deposited to an account, two things happen:

1. Interest is immediately earned on the higher balance in the account

to which the deposit has been made, even
though the funds have not been cleared at that time.
2. At the same time, the balance on the account on which the cheque
has been drawn goes down, so less interest
is earned.
Similarly if the cheque is deposited to a loan account, the customer
immediately stops paying interest on that part of the debt.

What if I need faster clearance?

For a fee to cover extra costs, banks can offer faster clearance, but there will
always be limitations with a paper-based system like cheques.
Electronic alternatives give customers faster access to their funds.
Most people are used to getting salaries paid electronically. This money can
be withdrawn by the customer as soon as it goes into their account.
Electronic salary payments are part of the direct entry system that provides
access to funds within 24 hours of the money being transferred to the bank.
Instead of sending or receiving cheques, businesses can use direct debit,
direct credit or systems such as Bpay, which avoid cheques altogether.
Individual customers can avoid cheques by requesting funds be paid directly
into their bank account. An example is to have tax refunds directly credited
to personal accounts, instead of waiting for a tax cheque.

Cheque facts

There are about 50 million cheques written each month[1].

Cheques are being pushed aside - the value of daily cheque

transactions has been cut by more than four-fifths
from $25 billion in 1994 to only $5 billion in 2004.

As a proportion of all transactions, cheques are falling.

Until the mid-1970s, when credit cards started to gain popularity, most
people used cheques or cash for their purchases or to pay bills. Today people
are increasingly using electronic transactions to make purchases or transfer
funds.
 There are about 72.5 million EFTPOS transactions each month[2].
This has almost doubled in the past seven
years.

There are about 94 million direct entry credits and debits each
month[3]. This has almost doubled in the past
seven years.

There are about 86 million credit card transactions each month[4].

This has more than tripled in the past seven
years.

E-Cheque System in India

E-Cheque System in India: A Distant Reality

With amendments in the Sections 6 and 1(4), coupled with the introduction of 81 A to the
Negotiable Instruments Act, 1881, ECT is now legalized. After initial implementation in
the national capital region, it will spread gradually across the country, though the
stipulated deadline for the phased commencement is December 31, 2006. In 2002, ‘e’ is
for an e-cheque. An electronic cheque. A cheque that never expires. A cheque that never
bounces whether because of insufficient balance in the account or a faulty signature. A
cheque the creditor doesn’t have to present physically at his bank. A cheque that enables
outstation payments to be credited to the payee’s account within 2-3 days flat. A cheque
that transfers money at half the cost of a demand draft!

E-cheques are already operational in the US, Australia has put them on trial since
November 2001 and now they are here in India.

Banking sector is considered the heart of an economy; integration of the banking and the
information technology industry has benefited the consumers in many aspects with
respect to time, cost and operational efficiency. Cheque is the most widely accepted
Negotiable Instrument to settle transactions in the world. Paper cheques provide
consumers and businesses critical alternative payments mechanism. Today billions of
cheques are written and processed each year, and consumers and businesses remain
confident and satisfied with writing cheques. However, cheque processing is
experiencing a radical change as financial institutions and their customers now have new,
more efficient ways to process and clear cheques. Financial institutions need to develop
and implement a cheque image clearing strategy to remain competitive in the future.

Negotiable Instruments consist of three types of instruments namely, the Promissory

Note, The Bill of Exchange and the Cheques. RBI‘s jurisdiction is mainly limited to the
"Cheques" since it is an instrument drawn payable on a Bank by a Customer. By
definition, (Sec 6 of NI Act), a "Cheques" is a bill of exchange drawn on a specified
Banker and expressed to be payable not otherwise on demand. A Bill of Exchange (Sec 5)
is an instrument in writing, containing an unconditional order, signed by the maker,
directing a certain person to pay a certain sum of money only to and to the order of a
certain person or to the bearer of the instrument.

If we look at the provisions of the ITA-2000, we observe that the requirement of Writing
and Signing are easily satisfied by the recognition of electronic documents and digital
signatures. The other aspects of the above definition are that the drawee should be a
Banker and the sum payable and the person to whom it is payable should be Certain and
the Order to pay should be unconditional. These are also possible to be satisfied by the
existing provisions of the Act. But for the exclusion of the Negotiable Instruments by the
ITA-2000, it appears that the system of virtual cheques would have become feasible now.
However, will a virtual Cheque be ever equivalent to a Real Cheque? This, depends on
the many other hidden features that the Cheque as we know today and the family of
Negotiable Instruments as we know today possess.

Important features of the Cheque are:

1.Transferability
2.System of Crossing and its implications
3.Creation of a Holder in Due Course

1.Transferability:
A Cheque as any other Negotiable Instrument is transferable by Delivery in case it is
drawn payable to a Bearer and by Endorsement and Delivery when made payable to
order. The word Bearer has been used in the NI Act as a person who is in the physical
possession of the written instrument. This aspect of Delivery cannot be constructive or
implied in case of Negotiable instruments. Hence it can be fulfilled only in respect of
Written Negotiable Instruments. If the Virtual instruments are to be acceptable, perhaps
these concepts of Delivery and Bearer as applicable to them have to be redefined.

2. System of crossing:
The idea of crossing of cheques has always been recognized through the method of
physically writing on the paper cheques. But after the introduction of electronic cheques,
the method of physically crossing the cheques has not been suitable amended so that if a
particular cheque has to be crossed or is required to be sent to a particular account, there
are no complications. Nowhere has it been mentioned after the amendment that the
system of crossing shall also be electronically completed. Crossing by definition is an act
of Writing. Unless this is redefined, it cannot be applied by extension.

3. Holder in Due Course:

This aspect of negotiable instruments actually rests totally upon the fact that there has to
be a physical existence of the cheque. Unless and until such existence is not there, it shall
not be possible to have a Holder in Due Course for a cheque or any other negotiable
instrument. There has not been an amendment which could give a full proof recognition
to a holder in due course of an electronic cheque. The very essence of a Negotiable
Instrument is its ability to create a Holder in Due Course. Whatever attempt has been
made to redefine the law and introduce Virtual Negotiable Instruments it will have to
accommodate this feature. Without this, the Virtual Cheques can only be another type of a
Quasi Negotiable Instrument

4: Rights and Liabilities of Bankers:

The extent of liability of the Collecting and the Paying Banker has been very clearly laid
down under the Banking law. It cannot be extended to the electronic cheques, simply by
introducing the concept of e-cheques without providing for a suitable amendment, which
would clarify as to rights and liabilities of the banks. It should be made clear as to when
will the liability of the paying banker arise in case of a fraud with respect to electronic
cheques, and what remedy does it have against the customer. It should also be mentioned
regarding the Collecting Banker
Problems with the traditional payment systems:
1. Lack of Convenience:
Traditional payment systems require the consumer to either send paper cheques by snail-
mail or require him/her to physically come over and sign papers before performing a
transaction. This may lead to annoying circumstances sometimes.

2. Lack of Security:
This is because the consumer has to send all confidential data on a paper, which is not
encrypted, that too by post where it may be read by anyone.

3. Lack of Coverage:
When we talk in terms of current businesses, they span many countries or states. These
business houses need faster transactions everywhere. This is not possible without the
bank having branch near all of the companies’ offices. This statement is self-explanatory.

4. Lack of Eligibility:
Not all potential buyers may have a bank account.

AMENDMENTS TO THE NEGOTIABLE INSTRUMENTS ACT, 1881. [17th

December, 2002.]
1. Substitution of new section for Section 6.-
For section 6 of the Negotiable Instruments Act, 1881 (26 of 1881) (hereinafter in this
Chapter referred to as the principal Act), the following section shall be substituted,
namely:-
"Cheque". - A "cheque" is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand and it includes the electronic image of
a truncated cheque and a cheque in the electronic form.

Explanation I.-For the purposes of this section, the expressions –

(a) "a cheque in the electronic form" means a cheque which contains the exact mirror
image of a paper cheque, and is generated, written and signed in a secure system ensuring
the minimum safety standards with the use of digital signature (with or without
biometrics signature) and asymmetric crypto system;
(b) "a truncated cheque" means a cheque which is truncated during the course of a
clearing cycle, either by the clearing house or by the bank whether paying or receiving
payment, immediately on generation of an electronic image for transmission, substituting
the further physical movement of the cheque in writing.
Explanation II.- For the purposes of this section, the expression "clearing house" means
the clearing house managed by the Reserve Bank of India or a clearing house recognised
as such by the Reserve Bank of India.'

2. Amendment of Section 81-

Section 81 of the principal Act shall be re-numbered as sub-section (1) thereof, and after
sub-section (1) as so re-numbered, the following sub-sections shall be inserted, namely:-
"(2) Where the cheque is an electronic image of a truncated cheque, even after the
payment the banker who received the payment shall be entitled to retain the truncated
cheque.
(3) A certificate issued on the foot of the printout of the electronic image of a truncated
cheque by the banker who paid the instrument, shall be prima facie proof of such
payment."

Need For Electronic Tokens:

Most E-Commerce applications are based on the Credit Card. Internet users will log on to
different sites giving their credit card nos. along with some additional information such as
Birth Date, a Pre defined Password / Email ID. But these features do not provide the
facility of Cash. Accepted, that even villages today are going for credit cards, but it
cannot replace the flexibility of Cash. The liquidity aspects of cash cannot be replaced by
plastic money. In USA, there is 300 billion Dollars worth of notes and currency in
circulation. Deposits by cheque are growing at the rate of 6 % and that by cash is growing
at the rate of 8 %. This alarming statistic clearly indicates that cash transactions are not
out. Infact a credible alternative to cash has to be found out for the Electronic media. Two
potential options are available E-Cash and Electronic Signatures.

What are Electronic Cheques?

Electronic cheques are another form of Electronic tokens. They are designed to
accommodate the many individuals and entities that might prefer to pay on credit or
through some mechanism other than cash. Once registered, a buyer can then contact
sellers of goods and services. To complete a transaction, the buyer sends a check to the
seller for a certain amount of money. These checks may be sent using Email or other
Transport methods. When deposited, the cheque authorises the transfer of account
balances from the account against which the cheque was drawn to the account to which
the cheque was deposited.
The electronic cheques are modeled on paper checks, except that they are initiated
electronically. They use digital signatures for signing and endorsing and require the use
of digital certificates to authenticate the payer, the payer’s bank and bank account. They
are delivered either by direct transmission using telephone lines or by public networks
such as the Internet.
Benefits of electronic Cheques:
• Well suited for clearing micro payments. Conventional cryptography of e-cheques
makes them easier to process than systems based on public key cryptography (like digital
cash).
• They can serve corporate markets. Firms can use them in more cost-effective manner.
• They create float and the availability of float is an important requirement of Commerce.

Advantages of Electronic cheques:

1. Similar to traditional cheques. This eliminates the need for customer education
2. Since Electronic cheques use conventional encryption than Public and private keys as
in e-Cash, Electronic cheques are much faster.

The risk is taken care of by the accounting server, which will guarantee that the cheque
would be honoured.
Disadvantages AND Legal Issues of E-Cash
1. E-Cash cannot be broken into smaller denominations.
2. The concept of maintaining a database of spent notes is very expensive.
3. Accessing Database of spent notes is also very time consuming.
4. Transaction based taxes account for a significant portion of state and local government
revenue. If e-Cash becomes successful, then people will use it to buy things like cars and
houses, which would not have been possible with actual cash. (One can’t physically carry
so much of real cash)
5. Currency fluctuation is another issue related to e-Cash.

US Scenario:
In the United States of America the Federal Reserve and the banking industry sought to
decrease the banking system's dependence on the actual transport of paper cheques, as the
9/11 terrorist attacks had brought transportation and cheque clearing to a halt leaving $47
billion worth of cheques floating in financial limbo for days. Moreover banks, as well as
vendors accepting a customer's payment of goods and services by cheques, view the long-
established paper process as slow, costly and inefficient. This convinced the Federal
Reserve Board to urge the creation of Check 21 and finally October 28, 2004

marked the beginning of an evolution in cheque processing. The Check Clearing for the
21st Century (Check 21 Act), federal legislation affecting all states, changed the method
by which cheques were processed in the United States, and also changed the technology
of cheque payment and acceptance. The Check 21 Act introduces new warranties,
indemnities and special refund system called the Expedited Recredit which protects the
customers from fraudulent presentation and processing of Substitute Cheques.

Indian Scenario:
In the five decades since independence, banking in India has evolved through four
distinct phases. The Indian banking industry is in the midst of an IT revolution.
Combinations of regulatory and competitive reasons have led to the automation of the
Banking Industry. The Reserve Bank of India has made several reforms for a safe and
efficient electronic mode of payment, along with improved efficiency in the paper based
mode of payments. In order to foster faster cheque processing the Central bank has
implemented Cheque Truncation system in India on a test basis in the National Capital
Region, in February 2008. Amendments to the Negotiable Instruments Act and the
Informational Technology Act have been made to facilitate the smooth functioning of the
New technology. The introduction of the new technology does not change the method of
writing the cheques. Government Departments may have to re-engineer their Codes and
Manuals governing settlement of their cheques through legally valid electronic images
instead of physical cheques. India is doing something very unique because it has a very
large cheque volume. It processes about 1.2 billion instruments annually. The National
Capital Region alone processes 6, 00,000 cheques in a day. Countries such as Singapore
have 4, 00,000 instruments daily.

Conclusion:
Thus the domain of Negotiable Instruments is too vast to be easily covered by the
Bridging provisions of the ITA-2000. If any attempt is made in a halfhearted manner to
bring virtual instruments under the ambit of RBI, we may end up with more confusion.
The amendment of 2002, which provides due recognition to recognition to the concept of
e-cheque, has not appealed to the characteristics, which are inherent to a cheque. The
aspects of transferability, endorsements, holder-in-due-course of a cheque have totally
been overlooked by the legislature. Therefore, there is a need of another amendment
which gives due recognition to these.
The US system has many similarities to the Indian system excepting for the concept of
"Substituted Cheque" which is not in India. It also has several consumer protection
oriented regulations. The Indian law also appears to be strong on the other legal aspects
of defining the presentation of truncated cheques and the protection for the collecting and
paying bankers. It may one day be possible for payees to accept cheques just as credit
cards and debit cards are accepted today. Even point-of-sale terminals – now being used
for other applications - may possibly be image-enabled, so that truncated cheques may be
viewed.
Another drawback of this concept is that due regard has not been given to those
customers who are not conversant with the online transactions of the cheques. The
provision has been introduced to bring convenience to the customers and faster working
of the banking system. But, what about these customers, don’t they need this convenience
and speed in their transactions? It is therefore suggested that, some kind of training
program should also be conducted so that every kind of customer is able to take
maximum advantage of any such development so that it appeals to the masses as a whole.

Nevertheless, a good initiative has been taken which needs due recognition, even though
it has a few drawbacks. It is a very big step, which has been taken so as to bring in a very
convenient and user-friendly method of conducting cheque transaction. The customers as
well as the bankers with full support have welcomed it. Certain amendments would
though make it a perfect piece of legislation. Today, many banks allow customers to carry
out transactions online, such as funds transfers and payments to public utilities or
specified business establishments. In a sense, electronic cheques will be a means for
electronic funds transfer. The legal issues that may arise in the handling of electronic
cheques will become clear as experience is gained in their use. But, the basic question is,
is the idea of electronic cheque, introduced to improve a lot of benefits to the citizens? Or
is it to provide more powers to RBI to control the Virtual world? These questions remain
to be answered. What is clear however is that amending the negotiable Instruments Act is
not a simple task. The legal position in the Meta society is too deeply embedded in both
law and practice. The Cyber Society however has a very brief history of Practice which
only the citizens are aware. The lawmakers in India are unfortunately not so conversant
with such Practices and unless the so-called Task Force is of the citizens, the law cannot
be one that would be acceptable by a wide section of the Cyber Society. In that sense the
attempt to amend the NI Act may only remain a distant reality.

Bibliography:
1. Bulletin issued by The Department of Payment and Settlement System of The Reserve
Bank of India from the Central Office at Mumbai.
2. Indian Cheque Truncation initiative by Ravi Trivedi of the IBM Business Consulting
Services.
3. Cheque Truncation- Business Opportunities by K.S. Bajwa
o General Manager- IT, Punjab National Bank
4. Bulletin issued by The RBI - RBI/2004-2005/28
o Ref: DIT.CO.No. 1/09.63.36/2004-05 - July1, 2004
o By: Rakesh Mohan
o Deputy Governor
o The Reserve Bank of India

5. Public Key Infrastructure Overview

o By JoelWeise - SunPSSM Global Security Practice
o Sun BluePrints™ OnLine - August 2001
6. Educational Review: "Understanding Check 21" and its Current Status published by
Securities Industry Association
7. Educational Review: Distributed Check Processing in a Check 21 Environment
o Angie De Jesus, Marketing Director, Panini North America
o Michael Pratt, Principal, Impact Marketing LLC
8. www.ignou.ac.in/virtualcampus/adit/course
9.www.indianmba.com/Occasional_Papers

case study

Association of Serbian Banks

Association of Serbian Banks Reduces Gyro Clearing of
Cheques to Less Than One Hour
In 2003, Serbia’s payment system underwent a transformation. The National Payment
System Services (SDK) was dissolved, and payment system services were assigned to
individual banks. The Association of Serbian Banks (ASB) needed to organise
automatic gyro clearing of cheques. To automate the process, the ASB introduced a
clearing system based on a service-oriented architecture, using Microsoft® BizTalk®
Server 2004 and Microsoft BizTalk Accelerator for SWIFT. Using the new solution, all
elements necessary for cheque processing transactions are contained within the central
clearing system; therefore, banks are able to process billing on the same day the
transaction occurs. As a result, gyro clearing of cheques has been cut from two weeks
to less than one hour, improving market liquidity and bringing substantial efficiency
gains to the market.

Situation
In 2003, the Serbian payment system underwent a major transformation. The National
Payment System Services (SDK) was dissolved, and individual banks were given direct
control of the market’s payment systems.

As part of this reform, the Association of Serbian Banks

We needed a faster, (ASB) sought to garner efficiencies in the gyro clearing of
more efficient system cheques. This was viewed as extremely important owing to
where a bank could the market-wide reliance on cheques as a payment vessel.
receive an electronic
version of a cheque The National Bank initially devised a small scale solution
and would aimed at satisfying the immediate needs of its clients. It
automatically be able hoped that this solution would serve meet clients
to process each requirements until a third-party could build a more
receivable at the comprehensive solution.
same time.
Unfortunately, this ad hoc solution was unable to satisfy the
Milovan Pesic, large cheque clearing banks. Because cheques were regularly
IT Consultant, submitted to the issuing bank using couriers or mail services,
Association of huge delays were not uncommon. Not only did cheques get
Serbian Banks lost in the post, but when they finally arrived, all cheque
details had to be manually entered and processed.

It took eight days for cheques to be processed, and due to unforeseen delays, finances
often lay static for 10 to 15 days. This had a worrying impact not only on working
capital, but on market liquidity as a whole.

Clearly, a new system was required, whereby the bank receiving the cheque could enter
the cheque details into a gyro clearing message, thereby avoiding delays, eliminating
errors, and accelerating the process.

Milovan Pesic, IT Consultant from the Association of Serbian Banks, says: “We needed a
faster, more efficient system where a bank could receive an electronic version of a cheque
and would automatically be able to process each receivable at the same time.”
Solution
Following a consultation period with Microsoft, the ASB began work on a new
architecture for the gyro clearing of cheques. As the ASB is non-profit organisation, it
was reluctant to burden its members with the costs of this project. As such, system
integrator Saga was employed to handle the implementation. Saga agreed that in the
initial phase of project, it would cover all costs related to hardware and software. For its
part, the ASB would provide the premises, communication infrastructure, and qualified
staff for the operations, and all necessary legal documents.

In addition, as part of the contract on strategic cooperation with Saga, Microsoft®

Consulting Services (CEE), a part of the local Microsoft office, actively participated in
setting global standards in the work process methodology of the Saga programmer team.

Through the program, the progress of the project and the

We identified deployment of the product were closely monitored by
Microsoft BizTalk Microsoft, and product features were enhanced. As Saga was
Server 2004 and participating in the Microsoft Adaptor Program (TAP), the
Microsoft BizTalk project team also had access to Microsoft’s internal product
Accelerator for development resources and participated in Microsoft
SWIFT as the ideal activities targeting application developers.
solution to speed up
processing of Zlatko Jegdic, General Manager of the E-Business
transactions Department at Saga Belgrade, says: “We identified Microsoft
generated from a BizTalk® Server 2004 and Microsoft BizTalk Accelerator for
number of different SWIFT as the ideal solution to speed up processing of
sources. transactions generated from a number of different sources.”

Zlatko Jegdic, The organisation was particularly impressed by the fact that
General Manager of BizTalk Server 2004 had been awarded the SWIFTReady
the E-Business Financial Enterprise Application Integration (EAI) Gold label
Department, Saga last year. The label confirms Microsoft’s belief that its
Belgrade solution provides financial institutions with a cost-effective
way to transfer payments and securities transactions, improve
partner connectivity, and improve operational efficiencies.

To ensure scalability in the future, the ASB required the messaging system to be based on
the SWIFT standard, thus allowing for additional functionality–such as the clearing of
payment orders and the easy addition of direct debit at a later date. The ASB required a
high performance, reliable, and scalable solution, and Saga began developing the
platform in close partnership with the Microsoft Technology Centre (MTC) for Europe,
Middle East, and Africa (EMEA).

The MTC’s close involvement in the project proved its value on many occasions. Not
only was the ASB able to save both money and resources on the testing and development
of the solution, but the MTC also assisted in the direction of the development and
possible alternative solutions. Furthermore, it was able to demonstrate new tools and
different approaches that helped enrich the development potential of Saga.

The new clearing system is based on a service-oriented architecture and utilises the
power of BizTalk Server 2004 and BizTalk Accelerator for SWIFT to automate the
messaging process. It consists of two subsystems—clearing and transport:

The Clearing Subsystem

The new cheque clearing system is recognized as being an Automated Clearing House
solution, the first of its kind based on the latest Microsoft technologies. Validations of
incoming messages are dealt with at the core of the clearing subsystem along with
account balance calculations and net calculations based on electronic instructions.
BizTalk Server 2004 and Microsoft SQL Server™ 2000 allow the implementation and
management of business processes that unify various applications and systems into an
integral whole. BizTalk Server 2004 provides a reliable system for message exchange
between various applications based on the XML standard, as well as a robust system for
orchestration of business processes, and the support for lengthy transactions.

The Transport Subsystem

With a budget of €1 million (U.S.$1.2 million), the ASB required a system that could be
quickly and easily implemented and maintained, scalable, and secure. Microsoft was able
to offer a security infrastructure based on industry standards with “cross-platform”
support.

The transport subsystem provides participants in the clearing system—banks, clearing

institutions, and the central bank—with a secure, reliable, and efficient message exchange
architecture. Fundamentally, it has to accept messages in SWIFT format and validate the
messages’ accuracy. At present, it uses the standard SWIFT format but can also be
configured to run XML format depending on system parameters.

In addition, it had to:

 Digitally sign the message.

BizTalk Accelerator  Send the message to the relevant Web service in a
for SWIFT will offer clearing institution using Simple Object Access
ASB the complete set Protocol (SOAP).
of schemas for all  Provide acceptance of messages sent by a clearing
SWIFT FIN institution.
messages, including
Microsoft Office At the other end of the system, the transport infrastructure
InfoPath 2003–based had to provide the clearing institution with verification of the
entry and repair digital
templates.
signature of the bank, based on the received BIC code.
Milovan Pesic,
IT Consultant,
Association of
Serbian Banks
In addition, the clearing house required the transport subsystem to:

 Send the message to BizTalk Server for further processing.

 Send the outgoing messages in SWIFT format to banks.
 Send the messages in SWIFT format to the real-time gross settlement (RTGS)
system of the Central Bank.
 Provide acceptance of the messages in SWIFT format by the RTGS system of the
Central Bank.

With this solution in place, the ASB can be confident that all messages are pre-validated
by the bank, for example, messages are in SWIFT format. In addition, the bank can also
add the ordinal number of the session and ordinal numbers of the message. The messages
must be digitally signed by the bank and the signature verified on the server end.

Benefits
Cheque Processing Time Cut by Two Weeks to Less Than One Hour

The new clearing system has had a profound impact on efficiency, reducing the time to
process cheques by two weeks. As a result, market liquidity has improved, and companies
will benefit from improved working capital.

Pesic says: “In the past, retailers brought their cheques to their banks, and the banks
would enter a message in a particular SWIFT format (but only in an aggregate way). This
significantly restricted cash flow. For example, if the daily turnaround was €300 million
(U.S.$363,500,000) this fell to €120-€130 million during the clearing process.”

A Long-Term, Scalable Solution

The architecture of the transport component is based on a client/server model, whereby

communication between the client and the server is synchronised. However, in future
versions, the transport component will be broadened to include Web Service
Enhancements (WSE) 2.0 improvements to integrate both directions of communication.
This will allow additional communication options and protocols to be added when
required.

A cheque is entered Since SWIFT has been introduced as the standard for all
only once, and all message exchanges, the new infrastructure is suitable for
transactions are other banking
conducted based on
the single entry. Also, transactions. “Now that an exceptional communication
clearing transaction infrastructure has been put in place, we intend to gradually
cycles are now start processing other tasks,” says Pesic. “These will include
available as needed.... interbank markets of all types, including the repro market and
gyro money market, which are very important and still
Milovan Pesic, underdeveloped here.”
IT Consultant,
Association of
Serbian Banks
According to Pesic: “BizTalk Accelerator for SWIFT will offer ASB the complete set of
schemas for all SWIFT FIN messages, including Microsoft Office InfoPath™ 2003–
based entry and repair templates. They will be able to support SWIFTNet connectivity
modes via SWIFTAlliance including FIN, InterAct, and FileAct to extend the reach of
their financial messaging platform.”

The third and most significant phase of the implementation will involve integrating the
entire Serbian clearing system with the technology developed by Microsoft and Saga.
Once this has been achieved, approximately 9 million messages will be processed each
month.

Rapid Implementation Saves Time and Money

The ASB required a system that could be quickly and easily implemented.. "Seamless
integration of Microsoft Visual Studio® .NET and BizTalk Server 2004 increase
developers’ productivity by simplifying the programming efforts and leveraging their
existing skillset,” says Jegdic.

With the support of the MTC, implementation took just four months. Furthermore, the
costs of using the new system decrease with the increasing numbers of messages
processed.

BizTalk Server 2004 and Visual Studio .NET 2003 development system have been tightly
integrated to provide Microsoft Enterprise Application Integration (EAI), Business
Process Management (BPM), and Trading Partner Interaction (TPI) development and
run-time platform. Accelerator for SWIFT (A4SWIFT) extends the BizTalk Server 2004
platform to provide the most comprehensive, reliable, and secure delivery of financial
messaging. According to Sheida Hadji-Ashrafi, Industry Manager for Financial
Messaging, Microsoft EMEA: "All financial institutions need to be able to send and
receive SWIFT messages. Technically, this requires the ability to take a message from the
core processing system in its native format, convert it to SWIFT format, and route it to
the SWIFT network (and to reverse the process to receive messages). This should be
accompanied by validation, auditing, and logging. This is all Accelerator for SWIFT is
about."

Eliminates Human Error

The new system also means that there is reduced opportunity for human error due to
increased automation and standardised communication. “A cheque is entered only once,
and all transactions are conducted based on the single entry. Also, clearing transaction
cycles are now available as needed, as opposed to the previous solution where operations
were limited to only one time-fixed cycle per day,” says Pesic.

Strategic man
Introduction

PESTLE stands for - Political, Economic, Sociological, Technological, Legal, Environmental.

PESTLE analysis is in effect an audit of an organisation's environmental influences with the

purpose of using this information to guide strategic decision-making. The assumption is that if the
organisation is able to audit its current environment and assess potential changes, it will be better
placed than its competitors to respond to changes.

The concept

To help make decisions and to plan for future events, organisations need to understand the wider
‘meso-economic’ and ‘macro-economic’ environments in which they operate. (The meso-economic
environment is the one in which we operate and have limited influence or impact, the macro-
environment includes all factors that influence an organisation but are out of its direct control). An
organisation on its own cannot affect these factors, nor can these factors directly affect the
profitability of an organisation. But by understanding these environments, it is possible to take the
advantage to maximise the opportunities and minimise the threats to the organisation. Conducting
a strategic analysis entails scanning these economic environments to detect and understand the
broad, long term trends.

A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the environment in which
an organisation is operating. Specifically a PESTLE analysis is a useful tool for understanding risks
associated with market (the need for a product or service) growth or decline, and as such the
position, potential and direction for an individual business or organisation.

A PESTLE analysis is often used as a generic 'orientation' tool, finding out where an organisation
or product is in the context of what is happening outside that will at some point affect what is
happening inside an organisation. The six elements form a framework for reviewing a situation, and
can also be used to review a strategy or position, direction of a company, a marketing proposition,
or idea.

Completing a PESTLE analysis can be a simple or complex process. It all depends how thorough
you need to be. It is a good subject for workshop sessions, as undertaking this activity with only
one perspective (that is, from just one person’s view) can be time consuming and miss many
critical factors. We all see things differently and harnessing the knowledge of several people will
ensure the process is robust and meaningful.

History

The term PESTLE has been used regularly in the last 10 years and its true history is difficult to
establish.

The earliest know reference to tools and techniques for ‘scanning the business environment’ is by
Francis J. Aguilar1 who discusses ‘ETPS’ - a mnemonic for the four sectors of his taxonomy of the
environment: Economic, Technical, Political, and Social.

Shortly after its publication, Arnold Brown for the Institute of Life Insurance (in the US) reorganized
it as ‘STEP’ (Strategic Trend Evaluation Process) as a way to organise the results of his
environmental scanning.

Thereafter, this ‘macro external environment analysis’, or ‘environmental scanning for change’, was
modified yet again to become a so-called STEPE analysis (the Social, Technical, Economic,
Political, and Ecological taxonomies).
In the 1980s, several other authors including Fahey, Narayanan, Morrison, Renfro, Boucher, Mecca
and Porter included variations of the taxonomy classifications in a variety of orders: PEST,
PESTLE, STEEPLE etc. Why the slightly negative connotations of PEST have proven to be more
popular than STEP is not known.
Some purists claim that STEP or PEST still contain headings which are appropriate for all
situations, other claim that the additional breakdown of some factors to help individuals and teams
undertaking an environmental scan.

Quite who and when added what elements to the mnemonic is a mystery, but what we do know is
that the actual order and words contained are common to certain parts of the world and streams of
academic study. The term PESTLE is particularly popular on HR and introductory marketing
courses in the UK. Others favour PEST, STEP or STEEPLE.

The PESTLE model

The PESTLE model provides users with a series of headings under which users can brainstorm or
research key factors:

 Political: what is happening politically in the environment in which you operate,

including areas such as tax policy, employment laws, environmental regulations,
trade restrictions and reform, tariffs and political stability.
 Economic: what is happening within the economy, for example; economic growth/
decline, interest rates, exchange rates and inflation rate, wage rates, minimum
wage, working hours, unemployment (local and national), credit availability, cost of
living, etc.
 Sociological: what is occurring socially in the markets in which you operate or
expect to operate, cultural norms and expectations, health consciousness,
population growth rate, age distribution, career attitudes, emphasis on safety,
global warming.
 Technological: what is happening technology-wise which can impact what you do,
technology is leaping every two years, how will this impact your products or
services, things that were not possible five years ago are now mainstream, for
example mobile phone technology, web 2.0, blogs, social networking websites.
New technologies are continually being developed and the rate of change itself is
increasing. There are also changes to barriers to entry in given markets, and
changes to financial decisions like outsourcing and insourcing.
 Legal: what is happening with changes to legislation. This may impact
employment, access to materials, quotas, resources, imports/ exports, taxation etc.
 Environmental: what is happening with respect to ecological and environmental
aspects. Many of these factors will be economic or social in nature.

The PESTLE process

 Decide how the information is to be collected and by whom (often a team approach
is much more powerful than one person’s view).
 Identify appropriate sources of information.
 Gather the information - it is useful to use a template as the basis for exploring the
factors and recording the information. An example of such a practical and ready-to-
use template created to accompany this factsheet can be found on the RapidBI
website.
o Go to the template
 Analyse the findings.
 Identify the most important issues.
 Identify strategic options.
  Write a report.
 Disseminate the findings.
 Decide which trends should be monitored on an ongoing basis.

Applications and when to use it

PESTLE analysis can be used for business and strategic planning, marketing planning,
organisational change, business and product development and research reports. It can also be
used from a departmental or individual perspective to look at what you deliver to whom and how
you do it.

To be effective a PESTLE needs to be undertaken on a regular basis. Organisations that do

analyses regularly and systematically often spot trends before others thus providing competitive
advantage.

Business planning

A PESTLE analysis is a useful document to have available at the start of a business planning
process. It can provide the management team with background and context information about
targets towards growth, new product development and brand positioning. The opportunities and
threats identified can be fed into a SWOT (Strengths, Weaknesses, Opportunities, Threats)
process and strategies identified to avoid or minimise the impact of the threats, and equally
strategies employed to build on the opportunities presented. For more on SWOT analysis, see our
factsheet on that topic.

 Go to our SWOT analysis factsheet

Marketing planning

As with business planning, a PESTLE analysis provides the essential element of ‘climate’ within a
situation analysis phase of the marketing planning process.

Product development

It is often said that there are few ‘bad products’ but lots of wrong time and wrong places. As a
PESTLE analysis provides a view of what is occurring in the external world, this will help when
making the decision to enter or leave an area of product development. For example, portable tape
recorders are excellent devices, but a PESTLE analysis might show that that, socially and
technologically, MP3 technology is more acceptable. Equally from an environmental point of view
the manufacture of tapes requires the use of heavy chemicals and would be increasingly taxed and
rejected by society.

Organisational change

When looking at changing one function or department a PESTLE analysis can be a powerful tool
for understanding the context in which the change is occurring and the potential areas of focus.
Best used in association with a SWOT analysis, a PESTLE will provide information about potential
opportunities and threats around labour changes, for example skills shortages.
Using the PESTLE to look at factors outside of the function but still inside the organisation can
highlight factors such as:

 Political: who is in what position, their power, vision, goals and directions etc.
 Economic: financial implications, productivity etc.
 Socially: what is and is not acceptable within the culture.
 Technological: new computer systems or other new technology.
 Legal: changes to employment law, recruitment, visas etc.
 Environmental: the space available, what can or cannot be moved where etc.

In this situation, a PESTLE analysis can be thought of more an as audit. It is best used at the data
capture phase as part of a pre-planning process of any strategic intervention.

While using the tool internally can add some value, it will focus on factors which can be changed,
that is they are in the control of the organisation, if not the function concerned. So while it may be a
useful framework, it should be used with caution in this context.

Research reports

A PESTLE analysis can also be used as a framework for looking outside the organisation to
hypothesise what may or may not happen. It is a useful framework to use to ensure that some of
the basic factors are not overlooked or ignored. Used in a similar way to that of business planning
– but the application of the data is different.

Advantages and disadvantages of using a PESTLE analysis

Advantages

 Simple framework.
 Facilitates an understanding of the wider business environment.
 Encourages the development of external and strategic thinking.
 Can enable an organisation to anticipate future business threats and take action to
avoid or minimise their impact.
 Can enable an organisation to spot business opportunities and exploit them fully.

Disadvantages

 Some users over simplify the amount of data used for decisions – it is easy to use
scant data.
 To be effective this process needs to be undertaken on a regular basis.
 The best reviews require different people being involved each having a different
perspective.
 Access to quality external data sources, this can be time consuming and costly.
 The pace of change makes it increasingly difficult to anticipate developments that
may affect an organisation in the future.
 The risk of capturing too much data is that it may make it difficult to see the wood
for the trees and lead to ‘paralysis by analysis’.
 The data used in the analysis may be based on assumptions that subsequently
prove to be unfounded (good and bad).

Examples
A PESTLE analysis can be carried at different levels depending on the context. Two case studies
are offered below to illustrate what a PESTLE analysis might look like in two different situations: a
more detailed level, using a soft drinks manufacturer as an example, and a simpler level, using a
children’s charity by way of example.

Case study 1: a detailed PESTLE analysis

What follows is a summary of the findings, not the data collection phase, of a PESTLE analysis
using a soft drink manufacturer called Soft Drink Co.

Political

The government plays a role within the operation of manufacturing these products in terms of
regulations. There are potential fines set by the government on companies if they do not meet a
standard of laws. The following are some of the factors that could cause Soft Drink Co's actual
results to differ materially from the expected results described in their underlying company's
forward statement:

 Changes in laws and regulations, including changes in accounting standards,

taxation requirements, (including tax rate changes, new tax laws and revised tax
law interpretations) and environmental laws in domestic or foreign regulations.
 Changes in the non-alcoholic business environment. These include, without
limitation, competitive product and pricing pressures and their ability to gain or
maintain share of sales in the global market as a result of action by competitors.
 Their ability to penetrate developing and emerging markets, which also depends on
economic and political conditions, and how well they are able to acquire or form
strategic business alliances with local packaging firms and make necessary
infrastructure enhancements to production facilities, distribution networks, sales
equipment and technology.

Economic

Last year the economy was strong and nearly every part of it was growing and doing well.
However, things changed. Most economists loosely define a recession as two consecutive quarters
of contraction, or negative GDP growth.

Due to low interest rates it can use the borrowing on research of new products or technology. As
researching for new products would cost less the Soft Drink Co will sell its products for less and the
people will spend as they would get cheap products from Soft Drink Co.

Before the terror attacks on 7 July, the UK was starting to see the economy recover slightly and it is
only just recently that they achieved the economic levels. Consumers are now resuming their
normal habits, going to the high streets, car shopping, and eating out at restaurants. However,
many are still handling their money cautiously. They believe that with lower inflation still to come,
consumers will recover their confidence over the next year.

Sociological

Many people are practicing healthier lifestyles. This has affected the non-alcoholic drink industry in
that many are switching to bottled water and diet colas instead of beer and other alcoholic drinks.
The need for bottled water and other more convenient and healthy products are important in the
average person’s day-to-day life.

Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition. Since many
are reaching an older age in life they are becoming more concerned with increasing their longevity.
This will continue to affect the non-alcoholic drink industry by increasing the demand overall and in
the healthier drinks.

Technological

The effectiveness of company's advertising, marketing and promotional programs. The new
technology of internet and television which use special effects for advertising through media. They
make some products look attractive.

Introduction of cans and plastic bottles have increased sales for Soft Drink Co as these are easier
to carry and you can bin them once they are used.

As the technology is getting advanced there has been introduction of new machineries all the time.
Due to introduction of this machineries the production has increased tremendously then it was few
years ago

Soft Drink Co has several factories which use state of the-art technology to ensure top product
quality.

Legal

With changes to the chemicals allowed in consumable drinks with the impact of upcoming EU
legislation this will impact Soft Drink Co’s production. They will have less than three years to
comply or be forced to remove the product from the shelves.

Environmental

With several EU countries introducing fines to manufacturers who do not use recycle-able
packaging, Soft Drink Co will need to review its strategy of using plastic bottles – and look towards
new package technology or the use of cans.

Case Study 2: a simpler PESTLE analysis

This might result from a simpler PESTLE analysis of a children’s charity and shows only items
deemed strategically important.

Political
 Level of government interest in children’s based services.
 Big Lottery Fund priorities and objectives.

Sociological
 Concerns around child obesity/lack of physical activity.
 Perceived danger for children – restrictions on children’s freedom of movement.
 Increase in organised activities.
Technological
 Negative impact of sedentary activities such as computer games.
 Impact of increased car use.
 Increased access to multi-media.

Economic
 Costs of play schemes and including disabled children.
 Shift towards paid or subsidised childcare/extended schools.
 Competitive tendering.

Legal
 Legislation – Children’s Act.
 DDA.
 OfSTED.

Environment
 Culture within the organisation.
 Culture in the community.
 Premises we have to use (buildings, layout and space).
 Impact on the environment – noise, etc.

PESTLE analysis dos and don’ts

 DO get other people involved.

 DO exploit any expertise and resources that are already available within the
organisation.
 DO use PESTLE analysis in conjunction with other techniques, such as SWOT
analysis, PRIMO-F analysis (see our SWOT analysis factsheet linked to above for
more information), Porter's five forces (see Useful links and Further reading below),
competitor analysis or scenario planning etc.
 DO incorporate your analysis within an ongoing process for monitoring changes in
the business environment.
 DON’T try to do this on your own.
 DON’T jump to conclusions about the future based on the past or the present.
 DON’T get bogged down in collecting vast amounts of detailed information without
analysing your findings appropriately.