Time to sign on the digital line

New digital signature legislation, called the eSign law, came into effect Oct. 1, 2000, after Bill Clinton signed it with both pen and ink and with a digital signature during a ceremony in June that year.

“eSign makes things clear,” said Barclay Blair, director of practices for PureEdge Solutions, a secure transaction technology company that counts the SEC and the Department of Defense as customers. “It very simply says to the courts in the U.S.: Don’t discriminate against evidence because it is electronic.”

The eSign bill is based on a model law designed by the United Nations. That model has been used to create legislation concerning digital signatures and document authentication by countries around the world. The list of countries includes the United Kingdom and Ireland. Both countries passed digital signature laws. Canada has passed some provincial and federal legislation, but has yet to pass eSign-like legislation federally. (2006 update: it did pass electronic laws in 2002.)

The global move toward legitimizing electronic contracts and paperwork will make it more attractive for businesses to conduct transactions in a paper-free digital environment. Transactions, done digitally, will be more secure, cheaper, and faster.

“The technology is better than a written signature on paper,” said Don Pare, CEO of MessagingDirect, a San Francisco technology company that provides digital signature and authentication technology.

“It provides you with three things,” he said. “You have authentication that the document came from where you thought it came from. It is time-stamped, and it is immutable, so what you get can’t be changed.”

Making sure all parties in the transaction know the signature is authentic has been a major concern and the technology providers have done all they could to answer those worries.

The eSign bill is not an all-encompassing legislation. Some transactions are excluded. For example, those relating to probate and an individual’s homestead are not covered by the legislation.

“Different groups wanted exclusions for consumer protection – things like turn off someone’s power, foreclosing on a mortgage, and reducing health benefits,” said Neil Iscoe of eCertain, an Austin-based trust technology service company. “Not everyone is comfortable with this yet.”

Iscoe predicted those kinds of exclusions will eventually be removed as digital transactions become commonplace.

The technology won’t be implemented overnight, either.

Ed Murrer, vice-president marketing for Xcert, a Walnut Creek, California secure-transaction technology company, predicts acceptance of digital signature technology will be slow, but will be quickly adopted once people realize the cost and time savings. He said it will be analogous to the rollout of automatic teller machines (ATM) machines.

“At first, people talked about ATMs and the possibility that someone could steal your money, but the convenience proposition was there and they just started using them,” he said.

As soon as a technology is more convenient than existing processes or saves people money, people adopt it, he said.

An early indication of how useful the technology can be was illustrated by the first paperless, fully electronic mortgage loan and home purchase in the U.S..

The multi-step mortgage process required the help of Bermuda-based electronic transaction firm Originals On-line. Besides legal and government representatives, there were eight participants, including the buyer and seller.

It appears to be an amazing time-saver. The transaction took three hours as opposed to 45 days for a paper-based equivalent mortgage closing. Murrer, whose company participated in the Originals On-line project, added that transaction also saved $700 in fees for the participants.

There is a strong business case to be made for using electronic signature.
“Think of the number of times a day people sign their name, whether in a personal or business context,” said Anil Pereira, senior vice-president, Internet service group at VeriSign, a trust services technology company.

“That number is astronomical,” he said. “Then look at the power of the Internet, the number of times messages and transactions are sent. What’s missing is an element of trust. Digital signatures are the solution.”

Pereira said a business transaction that results in exchange of goods or services can be put entirely online if a trust mechanism is in place.

“We have service to provide buyers and suppliers with digital credentials that allow spontaneous commerce,” he said. “You need to know who someone is and be able to check them out before a transaction can proceed and digital credentials provide just that.”

The technology can be used to receive and pay bills, as well as for binding contracts. It can also certify any transaction between two or more parties.

While a consumer can buy off-the-shelf digital signature software or download it from the Web, most will get the technology from a trusted source, such as a bank, utility company, or a trusted third party.

The signature software can be installed, like a piece of software, onto a computer or in a device, or it can be encoded onto a physical smart card that can be swiped.

In the case of a bank and customer relationship, a digital signature is simply an extension of the relationship the two parties have in the real world. That trust relationship can be used between the customer and third party, as well.

“A utility company could say, you have a digital signature with this bank, so we are willing to accept that to open an account with us,” said Pereira.

“But, then again, they wouldn’t necessarily accept a digital signature that you use with your library, just like (in the real world) they wouldn’t let you use your library card to open an account in person.”