Wednesday, October 1, 2014

A Real E-Check Application

What prevents a payer from creating an e-check within a personal electronic device (PED), electronically signing it, and transmitting it to a payee? As far as I can tell the check is valid as long as it contains the routing number, account number, date, and had the signature placed last on the payment data. Why then have we not seen an abandonment of card technology, which is expensive for the payee, vulnerable to attacks, and requires expensive processing equipment? There are a lot of reasons why the world does not adopt this superior method for payment but the primary reason (with absolutely no evidence for this statement) is bankers do not understand that an electronic signature makes the e-check impossible to repudiate later.

The implications of a real e-check are profound. A good design for the routing and clearing of an e-check will allow merchants to receive funds in their accounts the next business day (just like a payment card transaction) without an interchange fee. Merchants do not need acquirer services to deposit the e-check in their account. Financial Institutions (FI) can easily build portals to receive and process e-checks and payees that have an account with an FI should be able to cut deals based on volume that makes alternatives seem like the payment stone ages.

Merchants are not the only ones that benefit from a common e-check infrastructure. Any class of payee can have access to an application hosted by a PED that allows receipt, validation, and deposit of an e-check in real time if there is a network connection or a delayed deposit if a network is not present.

Why stop at checks? People can transmit, receive, store, and redeem all types of financial instruments, without undue processing charges. Will we see the elimination of paper and plastic in the next few years? We will if FI find their collective backbones.

Next Blog: A payment infrastructure without network access

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