E-check initiative to launch
A $32,000 e-check for an Air Force contract was sent by email from the Treasury to GTE as part of a pilot program.
Two banks, BankBoston and NationsBank, handled the payment, which will be processed through the Federal Reserve Bank of Boston.
"This is mainstream electronic commerce--this is not marginal consumer stuff," said Mark Greene, vice president of e-commerce for IBM, which provided technology to the banks. "When you have the U.S. government, with very significant risk management policies, we have entered the mainstream business world."
A Treasury spokesman called e-checks "the single most important technology for eliminating [paperwork]" in 2001 and 2002, when government agencies are mandated to move processes online.
"The process of processing a paper check is ludicrously Byzantine," said Scott Smith, e-commerce analyst at Current Analysis, who thinks e-checks may catch on because they cut paper-shuffling for all parties.
Originally announced in October, the pilot had been slated to begin late last year under the auspices of the Financial Services Technology Consortium, an industry group made up of financial institutions, technology providers, research groups, and government agencies. FSTC spent two years developing a protocol for e-checks.
Participants in the pilot think electronic checks will catch on first with smaller companies, those doing transactions too large for charge cards but too small to justify the cost of financial EDI (electronic data interchange), which involves computer-to-computer transactions on secure private networks.
"E-checks are bank payments safe enough to use on the Internet, and they save everyone handling time, elapsed time, and processing," said Frank Jaffe, director of applied technology at BankBoston. "They don't require significant reengineering, and it's a first step toward going commercial. It's real, it's working, and it's interoperable among different suppliers."
The e-checking scheme parallels how 67 billion paper checks are handled each year in the United States, but eliminating the paper speeds payments and cuts handling costs.
"Because we are using the same legacy systems that produce paper checks, we unplugged our printer and we plugged in an email server," the Treasury spokesman said. "We used the same data in the same format that the legacy system used to process paper checks."
CyberCash and CheckFree already offer e-checks, but frequently those systems are not fully automated and often involve the vendor writing paper checks to pay bills.
In the trial, about 50 government contractors will get paid with e-checks through BankBoston and NationsBank, with the pilot scaling to about 1,000 payments per day with a total value of $1 million a day, Jaffe said.
Singapore's government has said it will conduct an e-check trial later this year, and additional consumer-oriented pilots are expected. Ultimately, participants in the Treasury pilot think electronic checks might be priced at about the same level as paper checks today.
IBM indicated it is discussing trials with major money center banks for both consumer and business usage. It expects to announce consumer-oriented trials by fall.
"We are certainly doing a lot of internal planning and evaluation on how e-checks can be applied to our business," said GTE spokesman Chuck Wade, indicating GTE's seriousness about accepting electronic checks for the hundreds of millions of bills it sends annually to phone customers.
Other technology vendors for the pilot include Sun Microsystems for servers, IntraNet and Canada's RDM for payment software, Baltimore-based Information Resource Engineering (IRE) for smart cards, GTE Internetworking (formerly BBN), the banks for digital certificates, and Certicom for encryption technology.