I Wish They Had Told Me

How do E-Checks Work

E-Checks are short for electronic checks.  They work the exact same way as a paper check, with one exception, it is a much faster transaction.  It can be used in any situation that a paper check would be used as long as the customer provides their account, routing number, date, amount and signature.  Some people are starting to use e-checks instead of credit card processing because thy don’t want to worry about a credit card statement, late fees and interest.

How do the Work

The process works very similar to a paper check, however it is initiated online.  The consumer issues the check with a digital signature and sends it to the payee via the internet.  When the payee receives the check they endorse it only after they make sure the signature is authentic. Then the payee will fill out and sign a credit slip.  At this point the check is sent to the bank to be deposited in the payee’s bank account.  The bank must also authenticate the signature before making the deposit and sending the check to the payer’s bank.  The payer’s bank will then authenticate the signature and deduct the funds from the payer’s bank account.  The funds have cleared and the transaction is now complete.

Technology

What exactly is a digital signature and what makes it as valid as a physical signature?  A digital signature is actual a mathematical equation that allows you to recognize the payer and the check that was signed.  A private mathematical key is constructed to form the digital signature.  Every private key is encrypted and coincides with a public key.  There is special encryption key for every private key that affirms the correlated public key.  This key is the link used to verify an e-check signature and is made much easier and quicker with the use of computers.

The Advantages of E-Checks for Banks

• The cost of clearing checks for the banks, have been greatly reduced because they no longer need to mail canceled checks.

• Security is much better with e-checks than physical checks.  That is of course assuming that only the payer has access to the private key.

• Manual errors associated with physical checks are eliminated, which saves the bank both the time and money needed to investigate the error.

• A more efficient payment process and the reduction of data entry, freeing up work hours for other purposes.

• Quicker resolution to customer issues – problems involving electronic checks can be rectified almost instantaneously.

The Advantages of E-Checks for Merchants

• Improved security and efficiency resulting in a reduction in fraud, check write-offs and returned checks

• Timely and improved cash reconciliation and cash flow

•   Funds are typically available quicker

•   Reduced processing fees

•   Easier administered controls

•   Easier and quicker to make deposits

•   Improved reporting available online

In addition, e-checks benefit the consumer because they no longer need to mail a check.  This saves them time and the cost of a stamp.  One other benefit of e-checks is environmental, less trees used to produce less paper checks.

Apparently these advantages are not going unnoticed because e-check usage online is continuously growing in the United States.  Who knows, if this trend continues the days of check writing may soon be coming to an end.

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