BANKING & FINANCE: E-signatures – a great tool for community banks

It’s not unusual for complicated leases or house refinancing contracts to take several days to finalize while the parties track each other down so signatures can be made before a deal goes forward. Even far simpler tasks, such as a car buyer securing a loan from a bank, can take anywhere from a few hours to a few days while the loan officer awaits a signature.

New legislation that went into effect on Oct. 1, however, is changing the “waiting game” environment. The Electronic Signatures in Global National Commerce Act, approved by Congress with overwhelming bi-partisan support and signed into law by President Clinton, gives e-signatures the same legal status as the traditional handwritten form. The usage of e-signatures is an exciting development because it’s slick, it’s new and it brings incredible efficiencies to the banking industry.

Those of us involved in community banking are pleased because e-signatures provide another channel of delivery to our customers. We also recognize, however, that e-signatures aren’t for everyone. They can’t replace the personal touch of a teller, loan officer or executive banker. Still, we recognize the tremendous impact that electronic commerce has provided. It offers many benefits to consumers and remains a catalyst for America’s economic boom. E-commerce sales in America, for example, reached a record high of $5.26 billion in the first quarter of 2000.

To improve the security of commerce on the Internet, more banks and companies across the country are looking to use e-signatures to verify the identity of the computer user before authorizing loans and purchases. With e-signatures, consumers must give their consent before businesses can receive sensitive information electronically. This makes it safer for consumers to make purchases over the Internet.

In the electronic environment, however, the authentication of documents and signatures is considerably more difficult than in the traditional written environment. An original message may be virtually indistinguishable from a copy, and potential for fraud increases by the ease of alteration. Most of the states have already considered or enacted electronic authentication laws, but no federal safeguards were in place until the new legislation went into effect.

How do digital signatures work?

Digital signatures use public key cryptography, a branch of applied mathematics that concerns itself with transforming messages into seemingly unintelligible forms and back again involving two mathematically related “keys.” The private key is known only to the signer for creating the digital signature or transforming data into an unintelligible form, and a public key is for verifying a digital signature or returning the message to its original form.

To guard against fraud and imposters, a trusted third party is needed to associate an identified signer with a specific public key. That third party is referred to as a “certification authority” that maintains the public key and also issues and verifies the digital certificates that validate the identity of each part in an Internet transaction.

How businesses can prepare

Businesses interested in accepting digital signatures should begin to establish criteria to make these signatures valid. Those steps should include:

? Educate consumers that a mouse click is the equivalent of a paper signature.

? Offer consumers the option of removing their consent at a later date.

? Build storage and retention within the system for agreements to be pulled up later.

? Process e-mail more efficiently, since digital signatures will require more electronic contact with clients.

? Add higher security within each e-mail to clients.

While the prospect of fully implementing digital signatures presents benefits and costs, and challenges and opportunities, the banking industry is excited to help the public embrace this technology as another tool to help simplify their financial needs.

Mary D. Deci is Senior Vice President of Traverse City State Bank, responsible for human resources, credit card programs, electronic fund transfers, accounting, and Web site development. E-mail: mdeci@tcstatebank.com. BN

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