Financial Services Technology Consortium and
U.S. Treasury Teaming Up on Electronic Check Pilot Program
Chicago, October 8, 1997 -- The Financial Services
Technology Consortium (FSTC) today announced that the U.S. Department of the
Treasury's Financial Management Service will conduct a market trial of the
FSTC's Electronic Check technology beginning in late 1997.
The FSTC's Electronic Check is an all-electronic payment
instrument that can be used by all bank customers in a broad range of
transaction situations. The Electronic Check will offer consumers and small
businesses the opportunity to issue and receive Electronic Checks
one-at-a-time, while larger organizations can easily integrate Electronic Check
into existing processes already in place with their accounting systems.
Information regarding payment can accompany the FSTC's Electronic Check in many
forms ranging from free-form memo fields (like those on paper checks) to
free-form electronic documents (such as word processing documents) to standard
Electronic Data Interchange (EDI) transactions.
The objective of this live market trial is to demonstrate
that Electronic Check is a secure and acceptable bank solution to electronic
payments. A further objective is to identify what is required for Electronic
Check to mature into a ubiquitous, sustainable, and commercially viable
electronic payment mechanism.
"The Treasury trial is the culmination of the FSTC's
two-year research initiative into an all-electronic payment instrument, which
will enable safe, secure payments over the Internet in business, consumer and
government markets," said Frank Jaffe, Project Director for the FSTC's
Electronic Check Project and Senior Systems Consultant for Advanced Technology
at BankBoston. "We expect this market trial to be the first in a series leading
to a commercial roll-out that will lay the groundwork for this electronic
payment mechanism to meet and exceed market demand long into the 21st century."
During the pilot, Electronic Check will be the payment
method for selected Department of Defense contracts with small-to-medium sized
suppliers who currently receive paper checks issued by the Defense Finance and
Accounting Service (DFAS). DFAS is working closely with the U.S. Department of
the Treasury to enable these contracts to be paid using Electronic Checks.
The companies will be able to validate the authenticity of
the Electronic Checks, endorse them with a digital signature, and forward them
to their banks for rapid deposit. BankBoston and NationsBank are the two
commercial banks participating in the trial. They will deposit these electronic
checks into customers' existing checking accounts and will clear them
Gary Grippo, Program Manager for Electronic Money for the
U.S. Department of the Treasury's Financial Management Service, noted what
attracted the Treasury to the FSTC's Electronic Check. "The inherent security
in the technology's design has proven to be the only solution that satisfies
the Treasury's stringent security requirements," he said. The Financial
Management Service (FMS) is the U.S. Treasury Department's bureau responsible
for the U.S. government's payments, collections and central accounting
functions, and is actively seeking alternative options to comply with the Debt
Collection Act of 1996, which mandates that all federal payments be made
electronically by January 1999.
"Because this pilot is being conducted by and for banks, it
follows accepted 'safety and soundness' practices observed by the U.S. banking
system. Combined with the negligible incremental costs of issuing electronic
checks, we believe this technology, which fits within the framework of existing
standards, holds great promise for use by the Federal government in transacting
with individuals and businesses," Grippo added.
Over the past nine months, FSTC project participants and
the U.S. Department of the Treasury have been actively preparing for the trial
scheduled to begin live operation later this year. IBM and Sun Microsystems
have separately developed Electronic Check banking software that will function
as a front-end to banks' legacy systems so that Electronic Checks can be
processed along with paper checks using existing systems. These solutions are
now being tested at BankBoston, NationsBank and the U.S. Treasury.
In addition, IntraNet, Inc. is mapping Electronic Checks
into electronic cash letter format for electronic presentment and has
contributed to banks' integration with existing check processing systems.
Research, Development & Manufacturing Corporation ("RDM") developed
software that will be used by the participating businesses to process
Electronic Check deposits in conjunction with Smart Cards and readers provided
by Information Resource Engineering ("IRE"), Inc. GTE Internetworking (formerly
BBN Corporation), RDM and Sun developed a solution that has been easily
integrated with the government's legacy accounts payable system to issue secure
Electronic Checks. GTE Internetworking is also supplying certificate management
and security solutions.
How Electronic Check Works
The Electronic Check is essentially an electronic version
of a paper check. It is created on a computer (PC or larger), embedded in a
secure file, digitally signed and sent over public networks, such as the
Internet, directly to the intended recipient.
Security and privacy measures are unparalleled because the
FSTC's Electronic Check technology uses token-based digital signatures and
certificates that enable recipients to verify that each check is authentic, is
was signed by the authorized person who sent it, and has not been tampered
with. Unlike paper checks with handwritten or machine-generated signatures,
digital signatures are virtually impossible to forge.
"The clearing of Electronic Checks closely follows
procedures used for paper checks and adheres closely to that regulatory
environment. Because it is modeled on paper checks, banks can readily integrate
Electronic Checks into their existing check processes," said Stephen Schutze,
SVP in Transaction Services at NationsBank. "By leveraging this existing
infrastructure, financial institutions will be able to offer Electronic Checks
to their customers with moderate effort or investment. We believe the FSTC's
Electronic Check, developed by the banking industry, is fast becoming an
efficient standard for electronic checks," he added.
Primary market research conducted in 1996 revealed an
extremely high degree of acceptability by consumers and by corporations of all
sizes. These findings confirm the expectation that an electronic counterpart to
paper checks, by far the preferred method of non-cash payments, will have
tremendous marketplace acceptance.
The FSTC Electronic Check project is the result of
comprehensive research, development and testing through the efforts of
participating FSTC members, including banks, technology providers, research
organizations and government agencies. The technology design, successfully
demonstrated in late 1995, has been developed into a highly secure, yet
flexible, protocol called FSML (Financial Services Markup Language), enabling
safe payments over public networks while using existing settlement procedures.
About the FSTC
Founded in September 1993, the FSTC is a not-for-profit
organization of banks, financial service firms, industry partners, national
laboratories, universities and government agencies. The FSTC sponsors
collaborative research and development on technical projects affecting the
entire financial services industry.
Particular emphasis is placed on leveraging new
technologies that help banks enhance customer relationships, boost operational
efficiency and expand market reach.
The Electronic Check project is an excellent example of a
banking industry driven specification that ensures a safe and secure payment
system that responds to today's growing electronic commerce needs.
"This pilot will shed light on the economic proposition and
actual usage behavior to refine the business use," according to Catherine
Allen, CEO of the Banking Industry Technology Secretariat (BITS). The FSTC and
BITS formed a strategic alliance earlier this year to jointly promote a safe
and secure infrastructure for electronic commerce.
In addition to the Electronic Check project, current FSTC
development projects include Interbank Check Imaging, Bank Internet Payment
Server, and Risk Management. For further information on the FSTC, its project
participants and member organizations, visit the FSTC's web site at
www.fstc.org, or call the FSTC headquarters at (312) 527-6724.
Last updated: 18 July