Legal challenges in the current electronic check system privacy, security and confidentiality issues
1. 0 Introduction Developments in the information technology field have been overwhelming and have been affecting our economic and social life in a different ways. The present day space communications and wide area connection of computers in the World Wide Web have led to the integration of the world into virtually a global village where communication and business transactions are easier, faster and can be conducted in a very economical way. According to Grewal et al. (2004), the beginning of e-commerce in the early 1990s offered consumers globally convenience and unlimited shopping outlet. Convenience in e-shopping reduces costs for searching for a product when a consumer is under time pressure due to different important commitments. The developments in information technology are strengthening individual country, corporate and personal productivity. The developments are also increasing the capacity of small and large organizations to reach new and expanded markets, reach new geographical areas, transcending political barriers, which would otherwise have acted as impediments to business expansion. Proper infrastructures are being provided to enable this developments penetrate cities and villages alike and contribute positively to the development of the different countries economies. Funds are being allocated to well formulated and adopted policies whose main aim is to strengthen the information technology field and thus strengthen its contribution in promoting business activities within different regions as they share information and technologies.
Furthermore, institutions are being restructured to cope with realities of life regionally and internationally and provide avenues to absorb skilled IT professionals developed from educational, health and business systems and to match the growing information technology need and use mostly in e-commerce activities. Apart from enhancing efficiency in administration, the revolution in information technology has improved the standards of the respective populations both economically and socially. The populations using e-commerce avenues shop for the best products and services, which enable them, contribute more to economic development. The political will and realization of social realities, economic needs and cultural requirements have greatly avoided conflicts of interests between the governments and their populations.
Trade being a major driving force of many economies in the world has been affected grossly by the growth of the internet. Electronic commerce has been made a reality with consumers from all over the globe able to browse through online catalogues to look for the best offers, and then they order the selected goods and pay for them electronically. Others pay bills such as utility bills, telephone bills via checks, which are then cleared electronically. At present, most financial institutions allow their customers to access and manage their accounts electronically enabling them to make financial transactions online. Furthermore advertising, marketing and customer notifications have also been made in a wide sphere easier, cheaper and convenient. Online marketing advertising and notifications provide an avenue for advertising and notification with relatively low costs in which business owners and financial institutions reach and update customers of any changes by a click of a button.
In addition, as the numbers of internet users grow the amount of internet business transaction is expected to grow significantly. Trust and security in electronic information exchange are critical in enhancing the public confidence on validity, integrity and reliability of electronic records. According to most companies and financial institutions, information subjected to regulatory compliance is considered by the public as trustworthy and reliable. Similarly secure electronic business transactions, confidential information sharing and electronic fund transferring and a globally acceptable electronic identity management system are inseparable effective e-commerce operation platform. Ensuring that electronic business systems can be trusted is crucial in building adoptability to e-commerce activities. Breaking down negative beliefs about the internet and internet related activities call for purposive and dedicated awareness.
In order to achieve widespread e-commerce adoptability the provision of the necessary platforms for undertaking online transactions has to be emphasized. These platforms require massive investments and technical support. Governments in different regions of the world are supporting investments in the Information Technology platform because they have realized that e-commerce support will drive trade and economic development to a higher level as they provide easy means whereby individuals, businesses and the government departments can trade and shop effectively and efficiently. To effectively deal with security and privacy issues requires a comprehensive and integrative outlook of architecture, design and implementation of the electronic commerce solutions and legal framework. Internet users need secure trading platforms where their privacy, confidentiality and secrecy are assured. Moreover, they need to trust the security of electronic information exchange and payment system. This is one of the critical factors in enhancing the public confidence on validity, integrity and reliability and security of remotely done electronic operations. Security in electronic business transactions, confidential information sharing and privacy in electronic fund transferring are a prerequisite for effective e-commerce activities.
The past status of informational technology is very volatile with regards to security. Data security, which constitutes confidentiality, integrity and availability, has continued to pose threats in the electronic commerce platform. Although computer and computer networks have provided an avenue where large amounts of data can be stored and accessed for running the activities of an organization located in the same building or in different localities, unauthorized use is downplaying these great developments. This study discuses legal challenges prevalent in the United States electronic checking system because the US has one of the most developed economy and therefore has faced many challenges in relation to e-commerce and has therefore some of the best laws governing e-commerce that can easily be imitated in other jurisdiction facing similar challenges.
SECTION II
2. 0 History of electronic payment systems
E-commerce utilizes electronic payment system to a very high degree. E-commerce and electronic check processing security is hindered by the different and conflicting goals and laws regulating their operation in every transaction performed by the users, merchants and banks. Merchants require transaction validity, coverage of liability and goods and services payment, customers require product purchase protecting their privacy and ability to pay for the products agreed to purchase. On the other hand, detection and prevention of fraud is the goal of financial institutions providing payment. Therefore to secure all stakeholders some secure payment protocols that enhances payment security have been developed. First Virtual was the first internet payment system available to the public. Its main objective was creating an easy internet payment system. In this system, neither buyers nor sellers were obligated to install new software, the buyer or seller just needed an internet email to be able to buy or sell via the internet with the help of the First Virtual System. This payment system did not use encryption though not all information travelled over the internet such as credit card numbers due to the internet openness nature. First Virtual PIN, which referenced the First Virtual account, facilitated transactions without the use of credit card numbers. Purchases could not be charged to the buyers account when PIN numbers are intercepted when being sent over the internet because email verification by the buyer to accept a charge was a prerequisite. First Virtual internet payment system was founded on the existing Internet protocols and its backbone designed on email and Multipurpose Internet Mail Extensions (MIME) standards. Communication to confirm charges against their accounts between the buyers and First Virtual was done via email and this reduced instances of fraud. On the other hand, sellers used either email, Telnet or any available automated programs compatible with First Virtual internet payment system mode to verify accounts and begin transaction payments.
The Digital e-cash utilized a minted coin model where e-cash tokens were digitally signed by either the buyer or the bank. These coins were passed through the bank, which verified their originality to prevent fraud. In the e-cash, the value of the token was visible while the buyers serial number was not. In a transaction, the buyer gave the seller an e-cash token equivalent to the product worth, and then the seller checked with the bank to ensure validity of the e-cash. After verification of the e-cash, the transaction was executed in such a way that prohibited the bank from tracking the buyers purchase. Cybercash was a mode of payment that required the buyers to install wallet software on their desktop, which run on behalf of the buyer when the buyer made a request. After the buyer selected a payment method, the seller sent the product information and payment to Cybercash which checked whether payment was possible using the existing financial networks and notified the seller who continued with the transaction or cancelled the transaction. No buyers payment details were availed to the seller securing customer information.
Millicent payment scheme handled very small transactions. Each online seller produced scrip to be used to buy products, which is availed to scrip brokers. Buyers intending to buy a product pay using the products seller scrip. Any differential between the product value and scrip value was compensated by the issuance of scrip worth the difference to the buyer when the sellers scrip is of a higher value than the product purchased. The open market payment system works through a Digital Order (DO)Digital Receipt (DR) pair cryptographically signed. When a buyer makes a purchase request, the seller sends a DO back to the buyer, which is forwarded by the client software to a Commerce Service Provider (CSP) for verification through the traditional financial networks. The CSP responds with a DR, which is forwarded to the seller by the client software. Relying from a secure transport method such as SSL it protects the privacy both the DO and DR when in transfer and hides buyers payment method from the merchant.
Smartcard payment schemes protect the privacy of the buyers and speeds up the verification process. The value of money in a smartcard reduces as the buyer purchases products. A global Public Key Infrastructure (PKI) for authentication to protect repudiation of both the buyer and the seller seems to be the way forward for securing the future of E-commerce transactions. In addition secure payment protocols require a functioning PKI to be able to verify customer and merchant identities to the required degree. Secure Access For Everyone (SAFE) coalition based on a global identity management provides a consistent and widespread electronic method for signing regulatory and commercial transaction in a legally enforceable way.
SECTION III
3.0 Electronic checking and data security
3.1 Electronic checking
3.1.1 E-check conversions
There are numerous electronic check conversion methods such as Point Of Purchase, Back Office Conversion, and Accounts Receivable Conversion among others. In the Point Of Purchase method, a check is tendered by the customer at a checkout and information from the MICR line is utilized to convert the item into an electronic transaction. The check is then handed back to the customer and cannot be reused again. In the back office conversion, method checks received are not immediately converted but are converted later in the back office or an offsite processing facility. Processing of the transaction may be done immediately or may have to wait until check conversion has been done. The accounts receivable conversion method is used for bill payment applications or for lock boxes payment. Just like in the point of purchase, the MICR data is captured for conversion into an electronic transaction of the item but for this transaction, the original check is destroyed rather than returning it to the customer.
Clearing and settling of transactions in these methods can be through sending of MICR data and other transaction information via the Automated Clearing House (ACH) or the MICR data and other transaction information can be sent in real time using the debit networks of the paying bank for risk analysis and authorization. It is the obligation of the businesses to manage risks associated with electronic conversions by adopting the necessary systems for risk management. In the implementation of any electronic check conversion, method stakeholder involvement ensures the success of the e-check processing system selected by businesses.
3.1.2 Check 21
Check Clearing for the 21st Century Act (Check 21) is one of the most important federal regulations ever passed in relation to the processing of checkselectronically between banks in the United States. This regulation has created radical changes in check processing not seen in the past half of a century. This Act was passed by the Congress to increase efficiency of check processing and to insulate the check processing system from the myriads of problems related to weather, terrorism among others.
3.2 Data security in computer network communication
Data security in the past has not been good. Information technology has posed a challenge to law makers and computer security specialist as they try to enact laws to govern computer security and data security. Data storage has evolved from the floppy disks era and non-storage of information in the virtual memory to the present hard disk storage era where sensitive information stays in the virtual memory and can thus be accessed if not securely protected. The advent of network attachment has created extensive data access from a computer so long as it is turned on and the network connection is established. Vulnerability of data stored in computers has been increased despite the introduction of passwords. Communication security in the electronic platform is almost non-existent as messages can be read throughout the network.
Data security in regards to confidentiality, integrity and availability is crucial in electronic communication and transactions. Controlling who reads information, ensuring data and programs are changed in a specified and authorized manner and assuring authorized users continued access are important in enhancing personal and organizational data security. Storage means, processing and data transfer availability are very critical in the modern and advanced technological era. Uninterrupted computer access and information stored in the computers strengthens the use and dependence of information technology by a diversified combination of users. Data availability is threatened by accidental factors but human factors such as sabotage, damage, destruction, removal of media and data, obstruction or data communication interruptions are the ones whose effect can be creatively and prudently be reduced by enacting regulations to govern human operation and to enforce adherence. Media usage denial due to overloading by unauthorized users cause authorized users to encounter working difficulties, which is detrimental to technological acceptance, and use for effectiveness and efficiency. Passwords controls system access and for effectiveness they are individualized and secret. Therefore, passwords are supposed to be removed instantly an employee leaves an organization or gives a notice for leaving. Some cyber-crimes have the ability to sniff and collect passwords and usernames and to stop these attacks and reduce vulnerability one-time passwords or encrypted passwords can be used.
SECTION VI
4.0 The law
4.1 Check 21 Act in the US
4.1.1 Introduction
Check 21 is a law by the US federal government formulated in such a way that checks could be processed electronically in a more efficient and faster way. The Check 21 Act authorizes the use of a substitute check as a negotiable instrument. The substitute check is reproduced from the original check and contains the front and back image of the original check. On presentment to a paying bank, processing is undertaken in a similar way, as it would be for the original check after verifying its validity. In addition, Check 21 Act states that a correctly prepared substitute check is a legal equal of the original one for all purposes. Furthermore, Check 21 Act does not mandate all banks to create substitute checks or accept checks electronically for payment processing. The effective date for Check 21 was October 28, 2004.
Among other legal requirements that a substitute check must meet is that it must contain a legend stating that it a legal copy of the said check and that it may be used like the original check. Although the Federal Reserve regulations make no mention of size and shape of a substitute check minimum industry standards set by American National Standards Institute (ANSI) must be met. A reconverting bank is one that creates the substitute check and must be identified as such in the substitute check. The Check 21 Act constitutes new warranties, indemnity and re-credits procedures thereby protecting substitute check recipients from suffering losses. Warranties protect recipients of substitute checks from incurring losses or suffering because of receiving a substitute check. Proving that a transaction has taken place by many customers constitute presentation of a document as evidence and a substitute check as stipulated in the Check 21 law is acceptable because it is treated as a legal and valid document having been prepared from the original just like a copy of an original check is made and used. Legally a customer is not entitled to a substitute check as this decision is left at the discretion of the bank, which may decide otherwise such as the provision of a photocopy to lessen liability from the use a substitute check. New and customers who already receive their paid and cancelled checks with their periodic statements are entitled to receive notice of the operation of the Check 21 Act and their responsibilities. Fraudulent checks are provided for by Check 21 law by ensuring that the customer is not responsible by timely notification to the bank. This rule applies to any received document such as an original check, a substitute check, an image of the statement or an item in line with the account statement.
Check 21 Act enables a customer who has a genuine dispute regarding the particulars of the received statement to be re-credited the amount lost in ten days time after complaining within the 40 days period given after receiving the statement. After the ten days investigation time of the validity of the customers claim without completing investigation the bank re-credits the customer account with amount up to 2500 plus interest and the balance of the disputed credit on the 45th calendar day. If a customers claim is found to be correct, full re-credit must be made by the bank on the next business day. However, a bank can prove that the charge was made correctly and avoid any re-credit for a charge done using either an original check or a legally accepted copy such as a substitute check. Accounts open less than thirty days or those accounts that have recent overdrafts have some exceptions, as there is a good reason to believe the customers claim to be fraudulent. Check 21 Act stipulates that if after investigation, the claim is found to be fraudulent and the customer acted in bad faith, then the customers indemnity be proportionally reduced to the degree of bad faith. Moreover, check 21 Act allows banks to make expedited re-credit claims from other banks where a re-credit claim against them was made by a customers receiving a substitute check that was from another bank apart from the one that made the expedited re-credit to the customer. Bank to bank claim is allowed 120 days from the day of transaction and the claiming bank must send an explanation to the indemnifying bank as to why the substitute check cannot be charged to the customers account. Just like with consumer re-credits the bank that prepared the substitute check has to give a response within ten days but now with a re-credit or a sufficient copy of the substitute check.
.1.2 Inadequacies of check processing system prior to Check 21
Federal Reserve System (FRS) forms the foundation of the American banking industry. American banking institutions are regulated by the FRS. The FRS also provides services to the financial institutions and the public. The directors of FRS are required to work in line with economic and financial objectives of the governments overall framework. Banks play an important role of distributing currencies and coins and operating the countrys check payment system within the American financial system. Federal Reserve banks under FRS serve as intermediaries in the American check clearing system performing an assistance role in check payment system.
Most of the checks, before the coming into effect of Check 21, were transported physically through a nationwide check processing network. The transportation proved cumbersome and difficult. In addition, it depended on three different types of banks namely the depository banks, collecting banks and the paying banks. The depository bank only processed cheques addressed to it. Checks requiring inter-bank transfer were deposited with the collecting bank, which identified the paying bank and presented it to be paid to the depositors account by debiting the payers account. This long process was made complex by the distances between the depository bank, collecting bank and the paying bank. The heavy reliance on free flow of the highway and air travel to transport the checks between the banks was compounded by squally weather, terrorism threats and transportation disasters putting the whole system of check processing into disarray. The introduction of the uniform commercial code permitted banks to electronically transmit images of a check instead of the physical original as agreed between banks. The principal idea of the electronic image transmittal (EIT) was check truncation where the original check was taken out of the system and converted into a digital representation by scanning both sides of the original check and then sending it electronically to the other bank which printed a copy and processed it as if it were the original check. Its huge setback was the requirement of inter-bank agreement to electronically transfer the check images. To deal with inter-bank agreement hurdle, the air and ground transportation problems and modernize the American check processing system Congress enacted Check 21.
4.1.3 Construction and details of the Check 21 Act
Keystones to Check 21 are the substitute checks. The enhanced photocopies of original checks are the ones referred to as substitute checks and are legally equal to original checks for all purposes provided they represent the original information accurately and bears the legend apart from the front and the back part of the original cheque. Under the Check 21 Act banks are not required to create substitute checks nor are they obligated to accept checks electronically. The introduction of the substitute check saw the removal of at least one step of transportation in the processing system. With the introduction of Check 21 two scenarios were created and these relied on the status of agreement between the depository bank, collecting bank and the paying bank. Where the depository bank had an electronic presentment agreement with collecting bank, which also had an electronic presentment agreement with the paying bank the depository bank could truncate the check and send the electronic image to the collecting bank, which then forwarded the check to the paying bank without having any paper exchange or transport. In the second scenario the depository bank may be having an electronic presentment agreement with the collecting bank, which does not have an electronic payment agreement with the paying bank. In this scenario the depository bank can truncate the check and send the image to the collecting bank but the collecting bank cannot send the image to the paying bank therefore it had to create a substitute check and physically deliver the substitute check for payment processing. Thus in both scenarios the original check never leaves the depository bank.
Consumer protections have been built into Check 21 Act to safeguard consumers and banks from losses because of receiving substitute checks. These protections include warranty, indemnification, and expedited re-credit and consumer notification provisions. In the warranties and indemnification every bank transferring, presenting or returning a substitute check warrants to the recipient of the substitute check whether an individual or an entity that the substitute check was correctly made and has been paid only once. In addition the reconverting bank must indemnify other banks or consumers for loss suffered due to receiving a substitute check instead of the original. However negligence reduces the amount of compensation according to the degree of negligence of the indemnified party. Moreover any additional expenses by the paying bank covered by the warranty due to imprudence by the collecting bank are covered by the collecting bank.
Expedited re-credit allows the consumers to speedily recover lost funds due to any kind of a bank error. This helps customers by requiring banks to hold disputed funds in their accounts instead of the banks internal accounts. 40 days are allotted for any consumer to present an expedited re-credit request preferably in writing. Then the bank performs investigation to verify the validity of the claim. Within ten days of no results on investigation the bank credits the customers account with up to 2500 with the balance within 45 calendar days whether investigations full or not. Furthermore Check 21 Act obligates banks to inform the consumers of the Acts procedures and its effect on consumers banking stating the functioning of a substitute check and genuine re-credit request for the banks error in crediting a customers account.
4.1.4 Check 21s impact on the banking industry Benefits and challenges
Under Check 21 banks are expected to save billions of dollars by reducing the cost of processing checks, by decrease in float and by faster detection of fraud. The obligation to comply with the Acts warranty, indemnification and expedited re-credit provisions by all banks will have a significant impact on the operations of the banking institutions. Given that payment effecting whether using cash or check is important for business and economic growth, the removal of the original paper check from the check collection, which refers to check truncation, has been seen to strengthen business efficiency. Similarly the introduction of Check 21 Act banks no longer have to physically deliver a paper check to initiate a transaction processing but they are allowed to electronically transmit an image of the original paper check. The image transmitted initiates the check payment processing by the receiving bank and can be used to create a substitute check for presentation to a bank that does not have the imaging system. The system has been able to reduce transport inefficiencies brought about by transport disruption and acts of terrorism and cost saving has been realized as no bulk check are to be transported. Image transmitted constitutes payment details and the front and back picture of the original check. Electronic check processing within the financial network has been identified as one of the most secure way of processing payments electronically as technology in use is tested to assure check information security.
Similarly with the advent of Check 21 Act customers have experienced a variety of changes, which are not huge. The customers have not stopped receiving checks together with their account statements because the contents of an account statement continue to be governed by account agreement rules between the bank and the account holder. The checks provided for in the account statement are either original or substitute paid or cancelled check. Check processing speed has automatically increased with the introduction of Check 21 Act but the banks are at their own liberty to credit the money into the customers account or hold it as float and earn interests on it, as there are no rules mandating the banks to do so. This therefore means that money deducting from an account has been faster than previous but money crediting may not follow the same pattern. To face this reality a customer have to verify their account status before writing up a check or risk receiving bounced checks with fees levied and therefore a chain of inconveniences. Check processing method is at the discretion of the banks whether to process it electronically or to use the normal check payment processing method as stipulated in the rules and guidelines governing check processing.
Studies conducted by GAO found out that check processing costs increased due to investment in technology and continued paper processing of checks. Although the hours for check transportation and transportation costs declined check imaging has been seen to have minimal effects on bank losses from fraudulent activities. The study observed that consumer satisfaction was intensified, as they could be able to access information about their checking account activity online and thus faster identification of fraudulent check activity leading to faster reporting and effective fraud prevention. Different players in the electronic check processing system may use a check for several purposes legally permitted by the law such a creation of an electronic fund transfer although the customer must be duly informed that the check may be processed in such a manner. This is because check processing is governed by different rules and guidelines from those that govern electronic fund transfers.
Check conversion uses a check as a source document for information to be used to initiate an electronic funds transfer through the electronic payment network such as the Automated Clearing House or debit card networks. As a result the check is not processed as a check payment. Check 21 provisions do not apply to Electronic Fund Transfers (EFTs) as stated above as EFTs clearing are subject to Regulation E and the NACHA rules. Accounts Receivable Check (ARC) and Point of Purchase (POP) are major check conversions, which customers encounter on their daily activities. In ARC the customer sends the check via the mail and the receiving company clears it using the ACH while in POP the customer presents the check to a cashier who swipes the check capturing account information and returns it to the check writer, which is then cleared through the ACH or the debit card networks. The customer then find the item purchased listed on the account statement as an electronic debit item with no image of the item provided. Checks drawn on the credit card account are subject to Check 21 Act and its associated provisions such as indemnity and warranty but not to expedited re-credit as this only applies to consumer account with only a deposit account.
Substitute checks are legal equivalents of the original checks. However requirements such as accurate and legible representation of all the information from the original image and legend bearing stating that it is a legal copy of the original check and that it can be used in a similar manner as one would use the original check must be adhered. Substitute check being legal equivalents of the original check may be used as proof of payment in a variety of transactions. It is the discretion of the bank to provide a customer with a substitute check even though without a substitute check to prove payment a customer can use a photocopy of the original check or a copy of substitute check provided by the bank. Operation of law necessitates customer notification however banks are obligated only to notify customers who already receive paid checks along with their account statement. New customers who in the course of transacting with the bank receive paid original or substitute checks must also be notified at the time of establishing any binding relationship. In addition once customers request original checks or copies thereof and receive substitute checks disclosure should be made as to the reason for the provision of a substitute check. Explanation and disclosure should be done as to why customers receive unpaid checks as substitute checks to avoid customer disorientation.
Check fraud through stolen check or via any other means is hard for the customer to prevent via the check conversion processing payment as banks are obligated to receive substitute check as if it were the original check. Timely notification to the bank should be made on receipt of substitute checks representing fraudulent original check in the periodic account statement to enjoy fully the rights stipulated under Check 21 Act. The Check 21 Act protects a customer against erroneous and unauthorized check payments with expedited re-credit provision protecting consumers who may have suffered loss related to a substitute check received. More burdens of the Check 21 Act rest upon those banks that choose to actively take advantage of the new opportunities given that those that act like reconverting banks bears the ultimate loss of losses covered by other indemnified parties for using substitute checks. On the other hand there is increased fear by consumer groups that Check 21 Act will increase bounced check fees, fraud, error and cause inconvenience to many consumers. Additionally the float balancing game played by many consumers will increase the number of bounced checks thus the increase in bouncing checks charges. Banks being not obligated to credit customers accounts once checks are cleared benefit at the expense of consumers.
More processing errors may result by the introduction of Check 21 Act, as the existence of two versions of legally acceptable checks will be within the check processing system thus causing confusion. However, while Check 21 have the capacity of increasing processing errors the additional consumer safeguards such as indemnification, warranties and expedited re-credit cushion the consumers against such check transactions.
4.1.5 The importance of implementing imaging technology for Check 21
According to Check 21 Act banks were allowed to send electronic image of front and back side and relevant information found on the original check to the collecting bank or to the paying bank to initiate check payment processing. In addition the banks were allowed to print substitute check for similar clearance for payment with banks not accepting electronic images. Banks and other financial institutions have adopted the imaging technology with significant results in cost savings and customers acceptance. This technology adoption has also led to great process and production efficiency, enhanced fraud detection and provided an avenue to venture into markets otherwise barred by logistical and operation overheads. Check imaging has solved the transportation systems unreliability thereby enhancing customer service, quicker and faster funds access given the ability to electronically forward deposits. The potential of scanning checks at an ATM machine will enable banks to install ATMs in more remote places and thus increase customer convenience however at a massive investment beyond the reach of small banks.
SECTION V
5.0 Privacy, confidentiality and security Problems Privacy has attracted a diversified range of definitions from scholars but Westins definition sums the essence of privacy as the claim of individual persons, groups or institutions to decide by themselves when, how and the extent of information about them is and can be communicated to others. Although privacy is envisioned, interpreted and embedded in laws in different ways, Holvast and Rosenberg visualize privacy in three dimensions, which encompass personal, territorial and informational privacy. The prevailing correlation between the privacy laws mis out on legal compatibility given the different interpretations of terminologies used, and different jurisdiction. Complicating the issues further is the different locations of financial institutions, consumers, other service providers, buyers and sellers in e-commerce and electronic checking system and the complex disputes and dispute handling procedures arising from such environments.
Personal data is vulnerable to manipulation, interception or even erasure thereby trespassing privacy of a person. Distinction between information that ought to flow freely and personal and confidential matter is important in securing the economic interests of the concerned persons. Unlike government information, which is available for inspection given that it is for the public interests and constitutes a resource of considerable import, personal information is confidential and thus should be protected. However even government withhold some records to protect justifiable government or private interests. In some instances the governments hold sensitive national security information such as trade secrets, personal data that must be properly secured even to the public eye. Maximum time for information secrecy varies according to the interest concerned. Similarly secrecy interests differ according to jurisdiction and this gives different obligations in the release of information, the respective authorities being at their discretion to avail the information.
The ever increasing information gathering devices for surveillance activities have reduced an individuals privacy and sense of security largely as personal information is collected sometimes without the notice or consent of the persons under surveillance. When surveillance and e-checking system are combined the collection of personal detail whether minute via the electronic system might be automatically collected and though securely archived as stated within the law may be used for non-intended purposes. The privacy and confidentiality of personal matter is further reduced by the availability of databases interconnected which might not be having similar security configuration and thus providing an avenue for cyber criminals to illegally access archived information and use it fraudulently. Complicating the matter even worse is the magnitude of data collected and archived in the available databases, which makes it harder for data accuracy validation and thus wrong inferences even when data was legally acquired. Despite the presence of such discrepancies legislation by different countries have been initiated to highly safeguard personal data and information collected automatically or voluntarily but technological advancement seem to be always ahead of the said regulations. The essence of many of the legislation is to strengthen and improve and individuals control over own data collected for use by another person or entity. Legislation on privacy and personal data protection cover local and regional jurisdictions. Different countries apply different principles in the handling of personal data such as that found in checks to be cleared using the e-checking system according to the laid out regulations and with utmost fairness. The accuracy of data sent via e-check processing system and archived in the designated archive platforms or shared practices should be strictly adhered. Moreover the purpose of personal data collection must be specified having been collected in a lawful way and must contain procedural rules to limit permissible intrusion by unauthorized persons to a specified interests of the private citizens. Electronic communication as utilized in e-check processing system may not have adequate legal provisions for confidentiality protection given that electronic surveillance and computer data matching and sorting technology intercept these communications very fast beyond the legal coverage. Investigative methods and procedures nowadays surpass inherent laws on security whereas on some instances their provision by law is restricted to most terrible crimes and persons reasonably suspected of having participated in a crime judicially and duly authorized. Data security sometimes calls for automatic deletion of entries from the computers whose purpose has been fulfilled to erase them from accessibility by cyber criminals for fraudulent use. The principle of individualized access to information has been cited as one of most difficult right to implement and secure as responsibility on openness and personal data protection clash. E-check processing system archives checks electronically processed and therefore access to the crucial information has to be closely monitored as alteration and rectification should be done by authorized persons only. Data flow in the current environment concerns different jurisdictions and countries therefore data protection and safeguard to ensure privacy as information circulates freely inside territories is imperative. Data protection in the transfer of personal information to third parties or countries require that the third party or country to be having adequate level of protection. This is because if data is transferred to a country without or with weak personal data protection laws the privacy regulations enjoyed in the country of origin may be lost as transfer from the data haven country is unrestricted and there are no legal remedies for enforcing the rights to privacy. As stated often data protection in the internet is complicated. Data relaying can be done to all over the world from any country having security protocols or not via the internet. Remote records kept on casual visits to the internet makes security in accessing the World Wide Web volatile as personal information can be archived in an insecure site.
In addition posting of check images on digital archives give hackers access to these images who then determine the details of the checks and using modern technologies fabricate new checks that appear valid and use them to fraudulently access their victims account and spend their money. This fraud is said to be very difficult to detect by the security systems. Consumers account security may therefore be in jeopardy with the taking effect of the Check 21. Moreover there is unfairness in the expedited re-credits provision in that it does not allow consumers whose checks were processed electronically but received photocopies of checks with errors that require correction.
To ensure privacy of data many methods have been in use. One of the methods is cryptography, which is seen to co-exist together with communication. Cryptography ensures privacy, safety and secure method of information transmission. However with the changing nature of communication more problems have been bred and complex social policy issues identified. Most electronic communication can be eavesdropped or impersonated. Moreover paper communications have their share of problems, as documents can be stolen, steamed open, signatures forged or contents changed. Interception of electronic transmission is easy as many of these transmissions are broadcasted via cable or satellite television and wireless phones. As such encryption ensures security of transmitted information given that only intended recipients are able to decrypt the sent information.
There are mainly two types of cryptography namely the secret key and the public key. The secret key is the oldest and has been in use for all kinds of communication. This method uses one key to encrypt and decrypt the data. Both the sender and the recipient must have the same key for proper information transmission to occur. Its short coming was the inability to send encrypted information to recipients unknown to you as the parties must agree on which key to use. However if during the first communication the communication was eavesdropped subsequent communication are not secure or private as a third party may impersonate the communications. On the other hand, the public key cryptography uses a combination of a private key safely kept and a public key available in the public domain. Digital signatures are used to authenticate messages sent through the public key form. The digital signature method verifies the senders identity and that the original contents of the transmission are not altered.
Every electronic commerce user and transaction processing incurs liability because of existence of risks. Equipments in use in electronic transactions compound the risks due to their applicability and performance. Laws regulating electronic commerce and transactions processing over the internet such as digital signatures value, consumer protection and copyright protection are partially contradictory thus requiring harmonization. When discussing e-commerce security, server software, client software, server operating software and the network support are very important. The server software being under constant attack by users requires up to date patches and vendor information to heighten the security of the server. In relation to client software security even in single user desktop operating systems must be implemented to avoid easy compromise of security physical controls. Although the operating systems for hosting e-commerce are securable, their shipments from the vendors are insecure. Comprehensive server protection should therefore encompass database customer information securing on the server as well as during server transaction handling. This should protect network sniffling and the possibility of server compromise. Another critical but a mostly insecure component is session transport, which encompasses the transmission of information between the client and server. Network protocols used have little or no security system inbuilt in them and some are not designed for confidentiality or authentication capabilities.
As the number of web servers increase the amount of internet business transaction is expected to grow significantly. With the feeble level of security offered by the internet many internet crimes are bound to occur such as identity theft, online data modification, and data stealing which are undetectable in most of the cases. Dealing with security and privacy issues therefore requires a comprehensive and integrative outlook of architecture, design and implementation of the electronic commerce solutions and legal framework.
Data encryption, one of the securest ways to transfer information electronically, is faced with many hurdles both legal and non-legal as it tries to secure data in transmission. For instance in the United States it is prohibited to transmit and or export products with strong encryption although it is considering relaxing these crypto regulations. Differences in jurisdiction and laws governing encryption in those areas is another hindrance that encryption has to overcome if it has to work in reinforcing data and information security whether stored or in transmission locally and globally. To secure electronic commerce and strengthen confidentiality international agreements need to be implemented to allow strong encryption schemes that are acceptable globally.
Electronic payment of bills, electronic check processing, performing online banking, e-shopping and other automated services have taken root with the advent of technology. Despite the ease in transaction various questions relating to erroneous entries solving, bouncing checks scenario, low fees and protection against fraud continue to be asked. Bank security procedures are sometimes not able to stop all bank frauds whether illegalized or not. Frauds involving check printing or altering or account numbers obtaining to arrange for payments from these accounts are some of the frauds found in the banking sector and can be solved by customers reviewing their monthly statements and promptly reporting any unauthorized transactions. Online monitoring of accounts facilitates faster and timely notifications that reduce a customers liability. Account information protection by not quoting sensitive data such as credit card information, social security numbers in email replies, which could be fraudulent or may be sniffled or hacked is another measure being advocated. Check security is important and therefore customers are expected to carry only the amount of checks they expect to use securing others and promptly reporting lost or stolen checks. The introduction and acceptance of electronic checking of accounts has made doing business easy as merchants are willing to process most of the checks electronically. At the point of sale the merchants just need to capture the customers details and use it later to arrange for an electronic funds transfer from their bank accounts.
5.1 Legal issues and challenges for e-checking and e-business
Implementing an e-check processing system for a business requires extensive considerations, consultation and involvement. The e-check processing system must obtain a company wide buy-in and every stakeholders must be involved in the decision making process from the outset. The finance, store operators, systems and IT analysts and professionals, security and fraud protection team, legal department and collections managers comprise of a strong stakeholder team to decide on an effective e-check processing system. Calculating return on investment for any e-check processing system requires going beyond credit authorization fees and transaction fees to understanding the true cost of check acceptance. Costs accruing from delays and returned items when considered together with capital costs for acquiring encoding and imaging equipments are huge thus locking out small banks and financial institutions. Risk management levels for electronic check systems covers conversion verification, collections and guarantees.
On the other hand, the use of electronic messaging and communication and its dependence by existing industries and businesses is making security of information crucial. Confidential information use and sensitive information transmission mandates integration of acceptable regulatory techniques believed to be the best to enhance confidentiality and record keeping. Organizations and business entities are obligated to put into place policies and procedures to ensure proper use or prudent blocking of all messaging in a communication channel. These are aimed at protecting the entities, their employees and customers from the ever increasing security and privacy threats. Public traded companies, financial service providers, health care providers and a host of other businesses are required to comply with several laws and regulations and supervisory guidance enacted. These include Federal Deposit Insurance Corporation IM Guidance, NASD Guidance, Gram-Leach-Bliley Financial Modernization Act of 1998, Health Insurance Portability and Accountability Act of 1996, Privacy Act of 1974 and a variety of laws requiring specific protections for the computerised collection of customer information such as the one experienced in e-checking system. Benefits derived from the adherence to these laws include increased revenues, efficient business continuity, and protection from financial loss, legal suits, reputation or intellectual property loss. Without underpinning the positive contribution of the internet and e-commerce, threats in the business environment have impeded the growth, as insecurity is increasing and privacy diluted thus not guaranteed. Aspects such as proving ones identity in the internet is very difficult unless one uses technologies such as public key infrastructure and digital signatures.
The ever evolving technologies present cyber criminals with access to servers within computer networks enabling them get private and confidential personal data and information. Therefore an effective legal infrastructure for secure e-commerce is important in the present environment. To achieve an effective e-commerce infrastructure requires an all-round development of laws, policies, industry self regulation, technical standardization and stringent law enforcement. A positive environment supports legal growth of e-commerce reducing threat from criminals. Inter jurisdiction cooperation for cyber crime investigation and prosecution is a high requirement in securing e-checking, e-shoppers and financial institutions at present and in the future.
Telemedicine consultations and electronic payment remain criticized regarding issues on confidentiality, security and privacy. The interconnection of network systems presents challenges which when not legally governed tend to infringe to personal right of privacy and personal data security. Tele-consultants may adhere to rules governing their operation but availability of personal data on a database for review and payment options open avenues for unauthorized use. Clear identification of liabilities arising from use of information collected during tele-diagnosis, tele-assistance or e-checking to pay for services rendered and prescription should be made to protect tele-consultants from unfair liability and patients from personal privacy and confidentiality from unauthorized data and information access.
In addition new operation risks apart from the simple mistake of imaging are introduced by Check 21 Act thus changing fraud involvement nature. Check processing speed is expected to drastically reduce check cashing period from four days to one as a result reducing check fraud. Moreover image enabled ATMs will play a critical role in reducing empty check fraud as they will be able to scan checks and confirm their value. On the other hand the non-identical nature of substitute check with the original check places fraud at a higher platform as security features such as the gray scale from the original check may not be visible in the substitute check, as they will be having black and white images. To deal with these myriads of challenges automated check readers to prevent the occurrence of check fraud by detecting forgeries may be installed though limited to large banks, which are able to invest in the automated prevention system.
5.2 Information security problems
Any new electronic payment system faces a variety of information security aspects. Concerns of individuals breaking into an electronic system and initiating unauthorized transactions on another individuals legitimate account thereby stealing money are ever present in the evolution of the payment system. Moreover great concerns that an individual is able to steal a customers personal data and use it to create an illegitimate account are ever present. Furthermore concerns that an individual will access organizational data and corrupt it then extort money from the respective institution to reconstruct the data. Money laundering transactions pose a great threat with the increased speed and convenience of the electronic payment system. Moreover the efficiency of the electronic system may facilitate funding of illegal activities such as terrorism. These among many others are the major concerns that the electronic payment system is faced by. As they portray many threats to the electronic payment system come from both within financial institutions to outside of these institutions. Every day complex systems and technical procedures are introduced to counter every known and cushion against emergent threats. Therefore, organizations just as the governments are responsible for outside threats are responsible for inside and part of the outside threats to their electronic check processing system. Security measures have to be formulated and periodic evaluation done to ensure maximum security is maintained even as threats change form of appearance. Fixing security problems as they arise is fruitless and therefore organization and financial institutions must adopt a proactive approach to ensure that rules and regulations formulated will be in compliance even at a later date. A variety of factors come into play when remote interaction for electronic payment system is adopted. Database querying, identified as an attribute of remote interaction allows the modification of financial system to reflect a given transaction, makes electronic payment system vulnerable to fraud, hacking and other disruptions causing significance losses and or inconveniences. With the growing trend of demand for continuous access to funds in accounts and the need for faster transaction completion the risks and vulnerabilities are becoming of great concern to both electronic processors to customers.
Terrorists are a form of external threats as they can target information infrastructure given that it contains crucial and huge data on international financial systems. They can manipulate financial data to acquire funds to fund their terrorist activities as such great caution on electronic payment processing should consider the system vulnerability to such attacks. This vulnerability is made real by the online trading platform where businesses and companies open their system to enable the performance of business transactions. Containing terrorist attacks, which derail and cause system break down may be impossible therefore measures to contain and remediate any security breach should be embedded in every organizations information security framework.
SECTION VI
6.0 Solutions To tackle fraudulent transactions and enhance the security of the electronic payment system companies should send information on all the checks they have written to their bank so that it knows which checks are authorized and which ones are fraudulent. In addition banks should place a tamper-proof, encrypted barcode on each check, which would contain payment information and identify each check written on an account. This would eliminate the burden of having to send check issue files to the bank routinely. A number of new innovative security features on substitute checks to protect consumers should be collectively used. Banks have a large incentive to keep substitute checks from being forged since the warranties and indemnities that banks take on when they truncate checks and produce substitute checks are enormous and could result into huge losses. In order to stop forgery banks should embrace the production of paper suitable for substitute checks that includes ultraviolet security marks, and ink that disappears when handled by a person. More advanced security features of this sort could easily be spotted by tellers who are trained to check ultraviolet marks on many large bills.
To effectively handle and assuage against risk companies and financial institutions must perform on-going information asset threat detection and concentrate on high value risks, as their consequences are also significant. In addition measures used to check compliance should be frequently tested, re-evaluated and modified according to present threats to maintain their efficacy. Involvement and participation of all levels of organizational management should be encouraged to reduce the risk of negligence and wilful misconduct and strengthening of available information assets. System review should be possible to assist in pin pointing the weak point in the information security platform and therefore corrective measures can be taken easily. Information security is part of a service that only an organization can provide despite the outsourcing of information systems to third party service providers. Therefore companies and organization outsourcing information system must demand high standards from the third party providers whether required to do so by the law or not.
Moreover proper information management should be done. Proper information management encompasses following the laid down procedures and protocols. Record on how the system is used must be kept to be able to understand how and to what extent information was compromised in case of a breach or during audit of the information security system for upgrade or modification to suit the changing needs and overcome the diversified threats.
Moreover to improve adaptability and adoptability of e-commerce the government should promote internet usage in a wide scale among their populations, companies and institutions. In addition the governments will have to reduce connectivity costs, enhance information technology infrastructure and improve broadband access and speed, as they are very essential in ensuring faster check transmitting and clearing. Moreover many e-commerce awareness campaigns targeting both the business community and consumers should be launched. In order to promote e-business reliability and security there should be set a central Certification authority with a Public Key Infrastructure encryption system. Apart from ensuring confidentiality, the PKI encryption system will provide access control, integrity, authentication and non-repudiation services for businesses particularly those using the e-checking system. To address the issue of privacy and secrecy a legislative framework should be drawn to outline the clear boundary about an individual or an entity in online transactions. Similarly in order to provide effective e-commerce services human skill for support and resources should be developed. There should also be continuous monitoring of progress and inherent flexibility of e-commerce platforms for fast decision making and recommendations where need arises. The implementation of any e-commerce platform should be done in collaboration with all concerned stakeholders from the private and the public domains overseeing the implementation, monitoring and evaluation processes.
In addition the government should put in place legislation that protects the population and the business entities against illegal e-commerce sites of non-existent companies, which defraud e-consumers in online transactions and which intrude in to system for malicious damage. The Government should provide litigation measures. Cyber crimes should be avoided through strict legislation to impose heavy fines and embargos on individuals and companies acquitted of internet related crimes. Security of online financial transaction should be given the highest priority to ensure that users are not negatively affected. In addition to that, the population should be encouraged utilize online services through educating them on their benefits.
The government should put in place proper internet infrastructure in all locations of the country that supports swift broadband to facilitate the adoption and utilization of e-commerce particularly the e-checking system by improving the speed and reliability of the online transactions. Furthermore, the governments should conduct e-commerce workshops to create greater awareness of online trading benefits, the risks involved, and the means to overcome these risks no matter how small their impact is. The Redesigning and expansion of GSM network controlled should be speedily done to promote e-commerce using the mobile telephony network. There has to be continuous investment in the information technology in diverse iteration year plans. The incentive provided for information technology infrastructure should be increased to attract more investments from internationally recognized IT firms who will wish to invest in the country to exploit the available Information Technology opportunities. To make these efforts successful government will have to conduct intensive and extensive awareness campaigns to its citizen and the business community on the importance of embracing the information technology in the educational, business and social perspectives.
In addition the government should endeavour to provide legislation to govern e-commerce and incentive exploitation services. Moreover the government should form partnerships and alliances with the private sector to finance and encourage internet business growth and expansion for use in the electronic checking systems.
To secure electronic payments a variety of changes need be effected. All security efforts must be risk based whereby financial institutions evaluate the information assets and concentrate on the threats with the greatest risk and has severe and far-reaching consequences. Similarly security efforts on any payment system must be continuous. In the continuous security efforts compliance measures must be regularly tested, re-evaluated and changed to ensure that they are efficient and effective. Proper cleansing of information systems must be done when employees leave a company and whenever a branch is closed. An all encompassing security efforts must be adopted. Every organization department or branch must be part of any organizational information system. Various practices and the organizational compliance must be overseen by the senior management. Every employee must be included in the operational responsibility putting into consideration the risk posed by humans in negligence and wilful misconduct. Employees must be trained to equip them with the necessary skills in handling their activities and any information system effectively. Later auditing to detect fraud through altering of information must be put into consideration thereby instituting means of reviewing Information systems on how they have been used and actual activities done. Secure information systems requires that third party service providers of institutions should be held to the highest standards. Security of information should be the responsibility of the financial institution.
Every network provider should be obligated to provide network security. In addition every data stream should have adequate privacy and authentication provisions. Financial institutions given that they want to give company insiders and a few selects businesses, customers or other financial institutions easy remote access should set up a virtual private network. Moreover financial institutions transmitting sensitive information over unprotected networks should adopt the IPsec framework. This framework acts at the network layer to protect and authenticate IP packets between participating IPsec devices.
Traffic screening as done by the firewall technology should be adopted as it protects intrusion into a network by a mistrusted network as they permit required traffic and blocks unwanted traffic or block services that are known to cause problems. Although permission to the outside World Wide Web network is important sensitive and secret data should be isolated from the corporate network being free from the internet. Data encryption should be embraced as it ensures data privacy by making data unreadable by unintended parties. Pretty Good Privacy cryptographic system should be adopted as they provide secure email communication and is readily available. Legislation to prohibit the use of, distribution, development and export of any cryptographic tool without a license from a special government agency for investigation purposes should be enacted to ensure easy and faster obtaining of information by the authorities when undertaking criminal investigations such as cyber-squatting without infringing into the personal space of individuals or entities. Other techniques used to ensure data security such as authentication, configuration management, good design, access controls, firewalls, auditing, security practices, and security awareness training should be embraced in the financial systems for check processing and effecting payments electronically.
Internet penetration and its adoption at the local and international level have revolutionized the trading environment in a dramatic and rapid way. Things that consumers took considerable time in shopping and comparing prices are now available at the comfort of their offices or homes. Every individual with internet connection or with access to internet connectivity has this great advantage. Although there are numerous challenges and impediments customer acceptance and utilization has been on the increasing. Ensuring that customer trust is not broken is among the issues service providers and legislators have to contend with as they seek to provide assurance in all trading aspects. Customer security in the traditional trading environment was high as customers interacted directly with the producers or their intermediaries. In addition customer privacy and confidentiality were tightly guarded given that information gathered was little and unless in sophisticated assets after sales meeting were not present and were particularly customer satisfaction driven. However with the advent of internet and its huge backing by ultra modern information system technologies trading has required huge data and information gathering stored in remote databases, which are accessible from different locations. E-commerce is information gathering, analysis and dissemination dependent. Therefore swiftness in data and information collection, analysis and dissemination makes great difference to the consumers who require speed and excellent services.
Building customer trust and loyalty has also been seen as another driver of e-commerce in the present times to the near future. Customers who believe that the quality of the products they are purchasing is similar or superior to the one available at the convenient stores will develop trust and confidence in the e-retailer and lead to repeat business which is crucial in sustaining e-commerce. However without strong information technology infrastructure which assures customers speed and reliability all this becomes a dream as customers perception is negatively developed. Governments located all over the world have identified that economic revolution is tightly tied with embracing of internet marketing and trading which is able to unite businesses employing different technologies and enjoying different advantages being in different locations thus leading to not only economies of scale but also to knowledge and skill sharing. As multinational companies and organizations embrace e-commerce, competition is raised and placed at a higher level. Hence outsourcing, alliances and partnerships in investing in information technology systems and research and development projects will be rampant as companies place themselves strategically to exploit e-commerce, cushion against its inherent risks and circumvent competition. Formulating necessary rules and regulations though difficult due to the expansiveness of e-commerce field will reduce conflict and confusion in aspects such as taxation jurisdiction, social impacts and religious orientations.
Some regions have different cultural and religious orientations which may be favourable or unfavourable to e-commerce. Therefore e-commerce proponents must take into considerations such instances and provide solutions which might be applied from without or from within these regions to improve e-commerce adoption and usage. Platforms for effective e-commerce will deal with identification problems whereby senders of information can be identified using internationally accepted identification mechanisms. In addition communication which is very crucial in effecting most business transactions must have well designed and reliable infrastructure. Internet must be ever-present, having high processing speed and must be capable of handling large volumes of data passing through them every second as consumers located all over the globe search, buy and process payments almost at the same time. This therefore calls the installation of better softwares and modern processing systems easily upgradeable with upcoming innovations.
Electronic check processing system covers a widespread and diversified field by encompassing almost every sector in any economy concerned with transactions. Checks receiving financial institutions have found out that check processing from all the different customers pose a huge task, as they have to be transported from the depositing institution mostly a bank to the paying bank. Logistical challenges, accidents and legal impediments delay fund crediting to customers accounts affecting business activity. The signing of Check Clearing for the 21st Century Act into law on October 28, 2003 and its effectiveness on October 28, 2004 placed electronic check processing on a higher and better platform. According to Check 21 Act banks could now process checks faster, efficiently and less costly. This was made easier by the introduction of a negotiable instrument known as a substitute check which is legally equivalent to the original check by having all information contained in the in the original check. The acceptability of this negotiable instrument enabled checks electronic transfers for payment processing immediately it was received. The check 21 law does not require banks to create substitute checks. Previously, for a bank to engage in electronic check presentment it had to have electronic presentment agreement with virtually each of the banks it had to present checks to for electronic processing. Therefore banks were unwilling to receive electronic check presentment due to lack of modern clearing technologies hindering the realization of efficiency and potential cost savings. To address challenges such as this Check 21 was introduced with the incorporation of a negotiable instrument called the substitute check which when prepared represented a legal equivalent of the original check. This negotiable instrument allowed processing of check to be made both by paper processing system and by electronic check presentment by banks with or without electronic check presentment agreements. Though no bank was obligated to create, receive or process checks electronically, banks were able to process checks in a whole new style. Check 21 Act gave check processing great stability in cases of emergencies by reducing extensive reliance on physical transportation to collect and transport checks for transaction processing. Fund holding by banks to cushion against losses and within the permissible period was altered by the enactment of Check 21 Act as processing was fast and this gave banks an end to gain from the speed of check processing against the desire of customers who need the money for economic developing activities.
The introduction of electronic checking system can be hailed as a positive step towards revolutionizing the payment system where customers take a lot of time in writing checks and waiting for them to be paid so that they can make use of money legally theirs. However, this noble introduction has numerous challenges encompassing a diversified field of players. To start with is erroneous crediting of customers transaction due to ineligible substitute checks and inaccurate information provided for in the checks due to foreign interferences and modifications. Secondly most banks may not be having the imaging equipment and facilities and given that substitute check making is not a compulsory activity for all banks the adoption of Check 21 act may take a lot of time leading to a confused payment system and increased risk as banks outsource the making of substitute check from third parties of banks who have the machinery and imaging equipments.
Check truncation was intended to reduce the amount of check processed through the paper processing system. Reduced check processing using the paper processing system was seen as one way of reducing transportation costs and increasing check payment efficiency. Major challenges such as check theft and unwarranted delays caused by road accidents were to be overcome by the electronic check processing system, which allowed electronic transfer of original check image for transaction initiation, and processing. This has taken a slower pace than anticipated as banks have to install technology system able to transmit and processes electronically received checks or prepare substitute check for payment. Given that banks have different internal rules and regulations governing check processing, integrating their rules and guidelines to the new requirements proved a stumbling block for both small and large banks. However financial institutions that had foreseen the technology advancement are at an advantage as they easily integrate their system with the new requirements.
Benefits from the adoption of Check 21 Act requirements and method of check payment are weighed down by the initial massive investments incurred but when considered in the long run these benefits will translate into massive savings overally and individually as consumers and banks fully adopt electronic check processing system. Challenges faced by consumers will provide a foundation for effective formulation of rules and guidelines on successive operation of the electronic check system within individual financial institution and across the financial institutions in adherence to laid down rules and regulations.
The electronic payment system has its own benefits coupled with disadvantages such as easy use by terrorists and money launderers to support their illegal activities and operations. While it is true that electronic transactions can be effected more rapidly and from remote locations, it is easier to maintain automatic records of such transactions and this will help to put in place automated blockages of certain transactions. Similarly, while it is nearly impossible to verify the identity of someone who initiates a transaction remotely by electronic means, we must bear in mind that identity verification is critical.
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