With the click of the Send button, the US. Treasury this week inaugurated the first test of the "e-check" system for making electronic payments over the Internet, e-mailing a US$32,153 payment to contractor GTE Internetworking for work on an Air Force contract.
Announced last year, the e-check system is backed by a consortium of banks, e-commerce vendors and government agencies led by Financial Services Technology Consortium (FSTC), a nonprofit industry research group. Their objective: to come up with an Internet-based electronic payments standard that would be widely used for business-to-business transactions, in some cases substituting for electronic data interchange (EDI).
A key benefit of e-checks is that they use the existing banking and business infrastructure and payment practices. Furthermore, the control of the transaction remains in the hands of the payer and payee, rather than necessitating the involvement of a third party.
"This is a significant step forward ... because it doesn't require extensive re-engineering for [companies] to use, it's reliable and it's working interoperably between a number of suppliers," said Frank Jaffee, a FSTC executive committee member and applied technology director at Bank of Boston, one of two banks participating in the pilot.
While the e-check was developed primarily for business-to-business transactions, officials said it could be integrated with consumer online bill presentment and payment technologies marketed by CyberCash Inc., CheckFree and MSFDC, the joint venture between Microsoft Corp. and First Data Corp.
For GTE, the e-check system is attractive not just as a solution for large business customers but for its consumer phone business too. "We receive several hundred million payments year. This is an attractive technology that's versatile enough to apply to those situations," said GTE's Chuck Wade.
In the 12-month pilot project, the Treasury Department will use standard e-mail to make up to 1,000 payments a day worth a total of up to $1 million a day to GTE's Internetworking division and 49 other government contractors. The pilot originally was slated to begin by the end of 1997 but was held up while security requirements were met and testing procedures were put in place, according to Jim Luisi, FSTC executive director.
In the pilot, GTE and other contractors will accept e-check electronic payments and process them like regular printed checks, with digital signatures stored on smart cards substituting for handwritten endorsements. Companies then will deposit payments with Bank of Boston or the other participating bank, NationsBank. The banks will use their standard clearing and settlement technology to forward payment requests to the Federal Reserve Bank in Boston, which will credit the banks' accounts and debit the Treasury's account. The entire process should take about 48 hours, compared with the usual week or more for traditional manual paper processing, according to the FSTC.
Other participants in the pilot project include Sun Microsystems, which developed a prototype e-check server for the US Federal Reserve Bank, and IBM, which developed a bank server the company expects to begin selling as part of its e-commerce product group by early 1999. The pilot is also using digital certificate technology from GTE Internetworking's CyberTrust group, IntraNet's electronic payments software, smart cards from Information Resource Engineering and payment-processing software from Canada's RDM.
One analyst noted that the e-check scheme appears to buck the trend toward business-to-business payments using P-cards, or procurement cards. This credit card-like system is still a "nascent phenomenon," said Vernon Keenan, senior analyst at Zona Research in Redwood City, California. "If e-check is properly marketed, it has a chance."
Other pilots could begin as early as next year.
(Additional reporting by Elizabeth Heichler, IDG News Service, Boston bureau.)