It's been four years since the Electronic Signatures in Global and National Commerce Act was signed into law, and to date few e-signature applications have moved much beyond the pilot stage.
But there have been pockets of activity lately, with at least three banks bringing the technology to market, or planning to. These banks have attempted to solve the problem that has led many bankers to shy away from digital signature: the difficulty of authenticating people who sign documents from afar.
KeyCorp has begun offering an e-signature option for student loans, quizzing applicants about their identity by using information from credit bureau reports. Union Bank and Trust Co., a $1.3 billion-asset bank in Lincoln, Neb., is accepting customers' signatures from auto dealers, where the borrowers sign loan contracts by using a stylus on a touch-sensitive screen rather than ink on paper. And Wells Fargo & Co. plans to come out with a product that will let customers use digital certificates to sign documents produced in the Adobe Acrobat PDF format.
Industry experts say it is one thing to do what the smaller bank is doing - which is similar to when a merchant captures a signature for a credit or debit card at an electronic POS terminal - and much more complex to do what Wells and Key are attempting. Key is using external authentication systems in conjunction with its electronic signature applications to validate applications over the Internet. Wells Fargo will rely on complex electronic encryption keys that are managed by - and can be revoked by - Wells.
The E-Sign Act settled the question of whether the act of clicking an "I accept" button on the computer screen would have the same legal validity as signing a paper contract - it does - but it left open the question of how a bank could verify that the person clicking the mouse is the one identified in the contract. Wells has developed a digital certificate application that individuals and businesses can use to authenticate themselves, and also plans to use the application for its own loan originations.
The goal in all cases, say the bankers, is to improve accuracy and accelerate the processing of financial agreements while increasing security for transactions executed over the Internet.
To be sure, some efforts have been made to use e-signatures in other areas. Some corporate treasurers are already using digital credentials to sign off on some transactions, such as wire transfers.
Those types of applications, however, tend to involve only participants who already know each other. In such cases the e-signature is designed to prove that the person initiating the transaction is who he claims to be.
Most banks still demand a conventional signature for a transaction such as a loan, even if they enable borrowers to apply online, said Avivah Litan, a vice president at the research and consulting firm Gartner Inc. of Stamford, Conn. "When it comes time to close the deal, most institutions want a paper signature, and to have people come into the branch."
But in some carefully defined areas, bankers are showing increasing confidence that they can use electronic signatures to authenticate prospective customers with enough reliability to close a loan - such as a student loan or car loan, potentially worth tens of thousands of dollars - without having a "wet signature" in ink on paper.
Key, for instance, announced last month that it had begun to offer an e-signature option for student loans. It started in late June and adoption has been brisk - 30% to 46% of borrowers have submitted their applications online, depending on the type of loan, said Paul Ayres, a senior vice president at the Cleveland company and its Internet channel manager.
The college crowd is a good audience for this technology, Mr. Ayres said. "You have a customer segment that is perfectly in tune with doing things electronically," he said.
The online application provides convenience for the customers and speeds the processing of the loan application; Key can provide a decision instantly.
Mr. Ayres acknowledged that the verification is not as tight as a banker might undertake at a branch. Instead, the authentication relies on a government-supplied personal identification number for federal student loans, or responses to a series of questions based on the credit bureau report on an applicant, or a parent, for the bank's own student loans.
"That doesn't require any customer authentication, just verification that the PIN is correct," Mr. Ayres said. "In the vast majority of education loans we make, the funds go to the school to fund your education. They don't go to you. It's pretty hard to commit a fraud."
Wells Fargo said in early June that it would sell digital credentials, or "signatures," that individuals and corporate customers could use to authenticate documents.
Jane Hennessy, the senior vice president of product management and marketing in the international group at Wells Fargo, said the bank and its partners are finalizing plans for rolling out the new products.
Early areas of focus are likely to include international trade and the pharmaceutical industry, a heavily regulated field where authentication is important for regulatory compliance.
She said she does not anticipate a lot of activity until November, when Adobe is scheduled to release an updated version of Acrobat incorporating the certificate technology, known as SimpleSign.
"I don't think there will be one gigantic bang and everybody will leap on the bandwagon, but I think there will be fairly rapid uptake," Ms. Hennessy said.
Union Bank is using a different e-signature approach for auto lending. Customers can sign their name with the stylus on the touch-sensitive pad in a car dealer's finance office, and that electronic signature is then affixed to electronic versions of the loan documents. The dealer uses the same authentication process it already has in place.
Michael W. Brewster, a senior vice president and the dealer loan manager at Union Bank, said, "It's kind of like signing your name at Home Depot."
Union Bank began accepting digital signatures on auto loans in mid-July with four dealers. Mr. Brewster said the bank will ultimately introduce the service to the 300 dealers it works with.
The technology allows the bank to compress the turnaround time on loans to a matter of minutes, rather than the two days that it takes on average to process a loan application on paper, Mr. Brewster said.
Mark F. O'Neil, the president and chief executive of DealerTrack Inc., the Melville, N.Y., online auto finance vendor that developed the electronic signature system, said nine lenders have signed up for this e-signature service, and nine more are likely to introduce it by yearend. He said it reduces costs for lenders, improves cash flow for dealers, and improves satisfaction for buyers. "It's a pretty compelling value proposition for all the folks who participate in the technology."
Ms. Litan of Gartner said banks are more likely to accept e-signatures when better standards emerge for authenticating the customer. "The law left it pretty wide open on what a signature is," she said.
