Electronic Checks

Electronic checks can be thought of as similar to electronic cash. It uses trilateral transactions as in e cash wherein a third party authorizes your checks. The buyers have to register with the third party account server to start issuing e checks. The account server also acts as the billing service. Like in the case of e cash, the registration procedure and the way of use may vary with different service providers. The third party can be a bank itself, thus making the whole procedure simpler.

The transaction is the same; here a check is sent instead of cash. And then the working is more or less like real world check payments. An account holder issues an electronic document that holds the name of the payer, that of the payee, and the amount of check. All this information is not encoded. Then comes the important part of signing it. We now need a digital equivalent of signatures, which in this case is a computed number that authenticates the check as coming from the owner of the account. The payee on receiving the check forwards it to the third party or bank, as the case may be, only after endorsing it with his own digital signature. The check is now cleared and the third party in turn debits the account of the payee and credits that of the payee.

Working of Electronic checks

The process of working of an electronic check has been depicted. It shows how a check moves from where it is initiated to where it ends. The system basically uses simple or conventional cryptography, which has been covered in the, chapter relating to security.

The software on the accounting server recognizes the electronic check as a special kind of "ticket". The digital signature of the user converts the normal electronic document into a ticket. The payee's endorsement transforms the ticket into another ticket, which is interpreted as an order to transfer funds as per the requirements. Every layer of endorsement thus adds information to the page. Sounds similar, doesn't it? Try and visualize, how a paper check is stamped again and again through out its journey from the payer and back to the payer's bank.

The various advantages offered by electronic checks can be listed as:

• Electronic checks work well with micro payments and in fact carry an edge over e cash because the system used for cryptography here is much simpler.

Since banks back checks and payment servers assume the financial risk, their acceptance is high. Scalability, which is a very important factor in today's era of growing Internet traffic can be well handled using multiple servers.

Electronic checks can create and manage float. This is achieved through the flexibility provided to the third party, which can act as a bank and maintain deposits, charge transaction fees etc, thus creating sources of income for itself.

• The working is extremely similar to that of paper checks thus making it easy for customers to understand the system and work in it.

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