Laws Slowing On-Line Banking Progress, Experts Tell House Capital

Government rules are hindering development of electronic financial services in the United States, on-line banking experts told lawmakers this week.

During hearings Wednesday and Thursday before the House Banking capital markets subcommittee, industry executives said laws restricting the use of digital signatures and the export of encryption technology are making it difficult for U.S. banks to offer new services.

Brent W. Robinson, senior vice president of Visa Interactive, complained Thursday that on-line banking innovations are being hindered because customer signatures must still be produced on paper documents for loans and many other transactions.

Instead, banks should be allowed to obtain and store signatures electronically, he said.

"Obtaining and maintaining signature files is the single largest impediment and cost to enrolling remote banking customers," he said.

Furthermore, banks around the world must subscribe to encryption standards to make transactions secure, but U.S. export restrictions are preventing international cooperation, said Steve Mott, MasterCard's senior vice president for electronic commerce. "Some government officials" want to keep encryption standards under U.S. control - an idea that could damage electronic commerce and "should be shelved ASAP," Mr. Mott said.

Michael Karlin, president of Security First Network Bank in Atlanta, said Wednesday that delays in security standards will scare off customers. "Most people who fill out our on-line survey say they have security concerns," said Mr. Karlin, whose institution operates entirely on the Internet.

Rep. Richard Baker, R-La., chairman of the capital markets subcommittee, said Congress may have to push banking regulators to update laws because the agencies are unsure of where to start. "There doesn't seem to be a clear picture of who is governing these activities," he said.

Congress also should encourage the Federal Reserve Board to speed clearing of interbank credits, said Richard Rowe, president of Belmont, Mass.-based RoweCom Inc. The Fed's automated clearing house network is too slow for low-value payments and is not in operation around the clock. "We need a system that doesn't sleep and settles transactions in real time," he said.

RoweCom, in partnership with Columbus, Ohio-based Banc One Corp., relies on the automated clearing house for payments associated with a document ordering and billing service between libraries and publishers.

Congress also could boost on-line commerce by dropping federal procurement laws that require paper records for financial transactions, Mr. Rowe said.

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