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An introduction to Electronic Checks

(By - Siddharth)

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 payments.

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 cryptography.

  • 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 infrastructure.