introduction to Electronic Checks
Electronic checks (or cheques) are also known
as e-checks. This means that instead of a paper check the customer fills
out their banking information (bank account number, routing number) online.
In a more simple language an e-check is an electronic version of a paper
check. It can be used in any transactions where paper checks are used - yet
it capitalizes on the speed and processing efficiencies of all-electronic
So how do e-checks work
Electronic checks are designed to accommodate
the many individuals and entities that might prefer to pay on credit or
through some mechanism other than cash electronic checks are modeled on
paper checks, except that they are initiated electronically, 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.
The payer writes the e-check through a computer, uses a digital signature
and sends it either by direct transmission using telephone lines or by
public networks such as the Internet. The payee receives it, verifies
signatures, endorses it, writes a deposit slip, and signs it. The endorsed
check is then sent over internet to the payee's bank for deposit. Bank
personnel verify signatures, credit the deposit, and then clear and settle
the endorsed e-check by sending it on to the payer's bank, where signatures
are once again verified and the amount of the e-check is debited from the
payer's account. The cryptographic certificates used with an e-check enable
a check payee to determine the validity of the signatures. Initially, these
certificates are actually transmitted with the e-check, but alternative
models where the transmission, or possibly even issuance, of the certificate
is not required are currently in the making. e-check technology also allows
digital signatures to be applied to document blocks, rather than to the
entire document. This allows parts of a document to be separated from the
original, without compromising the integrity of the digital signature.
Benefits of Electronic Checks
Electronic checks work in the same way as
traditional checks, thus simplifying customer education.
Electronic checks are well suited for
clearing micro payments; the conventional cryptography of electronic
checks makes them easier to process than systems based on public-key
Electronic checks can serve corporate
markets. Firms can use electronic checks to complete payments over the
networks in a more cost-effective manner than present alternatives.
Electronic checks create float and the
availability of float is an important requirement for commerce. The
third-party accounting server can earn revenue by charging the buyer or
seller a transaction fee or a flat rate fee or it can act as a bank and
provide deposit accounts and make money from the deposit account pool.
Electronic check technology links public
networks to the financial payments and bank clearing networks, leveraging
the access of public networks with the existing financial payments