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 electronically.

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.