Chemical Bank and First National Bank of Boston said that within two months they will demonstrate electronic cheques, which could become widely available for payments on the Internet, reports American Banker. Modelled after the familiar paper cheque and using an existing method of settlement, the electronic transaction would be one of the first fruits of the Financial Services Technology Consortium, which Citicorp Securities Inc organised almost two years ago to encourage explorations of leading-edge technologies. The consortium officially embarked on its electronic cheque project in early June and is moving rapidly toward a public demonstration by October. Also taking part with the principal subsidiaries of Chemical Banking Corp and Bank of Boston Corp, are Bank of America, Bank of Montreal, Citibank, Wells Fargo Bank, and Bank One of Columbus, Ohio. They are relying for technology support on a wide range of vendors and consultants, including IBM Corp, National Semiconductor Corp, Sun Microsystems Inc, Bellcore, and the Oak Ridge and Sandia national laboratories. They also have as advisory members the Electronic Check Clearing House Organisation and the National Automated Clearing House Association, two groups that are intent on automating – if not entirely eliminating – large portions of the cheque-processing infrastructure. This project directly addresses the problem of 60,000m cheques that our industry has to process, said John Doggett, director of applied technology at Bank of Boston and the technology consortium’s project director. The electronic cheque is one of the first such mechanisms, if not the first, that is supported by such a large number of banks and technology companies, he said as the consortium went public with its plan this month.
Paper item
The concept differs from electronic cheque presentation, which some banks use to process payments electronically before the paper cheques are actually delivered. And because the electronic cheque involves no paper document, the idea of cheque truncation – the holding of the paper item at a point of payment or deposit – does not come into play. The chequebooks will be PC Cards, which are highly portable and common in laptop computers. With expected advances in integrated circuit memories, electronic chequebooks could someday be incorporated in the plastic Smart Cards that banks and card associations are beginning to adopt, Doggett said. For their test, Chemical and Bank of Boston plan to exchange live payments over the Internet, using available Web browser technology enhanced with cryptography and digital signature techniques for a highly reliable level of security and authentication. Though the fledgling payment mechanisms handle digital cash or provide for secure transmissions of credit card data between buyers and sellers, the consortium’s plan is to replicate the cheque, albeit with similar security techniques. We didn’t necessarily have to go this way, but ‘electronic chequebook’ and ‘electronic cheque’ are models that people understand, Doggett said. The cheque will be created on computer screens and be sent through cyberspace. Like Cybercash and other innovators, the banks are taking on the challenge of a network easily accessible to millions of personal computers and known to be vulnerable to fraud. We built our system to travel over the roughest – meaning the least secure – road, the Internet, Doggett said. People can potentially look at (a transmitted cheque), but they can’t alter it without the tampering being detected, said Adam Backenroth, a Chemical Bank vice-president. Though the technology is certain to generate considerable excitement initially, some minds are turning to the fact that the electronic cheque falls between a few regulatory cracks. Thomas Greco, associate general counsel of the American Bankers Association, a consortium advisory member, said the transactions by default would, more often than not, fall under Regulation E, being the consumer protection rules for electronic funds transfers. But he sai
d several grey areas must be resolved, as the electronic cheque straddles the differently regulated realms of cheques, wire transfers and consumer-initiated electronic payments. Robert Ballen, an attorney with Schwartz & Ballen and counsel to the Electronic Cheque Clearing House Organisation, said, We are really just starting to look at the interplay between the product and the applicable legal issues. Reg E is the first stop. It’s an open question as to the extent, if any, the paper-based cheque laws apply to this product.
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