The Security Features of Electronic Checks

• The checking account has evolved beyond paper. Electronic checks, or e-checks, have increased in popularity because they are a fast and easy way to collect debt. In 2007, the use of electronic checks for in-store transactions increased by more than 30 percent, according to Intuit.com. Businesses that use electronic checks see their funds deposited nearly twice as quickly as with paper checks. Security measures are in place to ensure that consumers' financial information remains private.

ACH Network

• Funds collected through e-checks are handled by a secure system. The Automated Clearing House, or ACH Network, moves funds electronically between accounts. It is governed by the National Automated Clearing House Association and the Federal Reserve. The ACH Network payment system also handles debit card transactions, direct deposits, Social Security and other government benefits, direct debit payments and payments from business to business.

Encrypted Messages

• A public key cryptography system uses one key to encrypt a sent message and a separate key to decrypt the message. When a paper check is converted into an electronic check, the private key uses a secret mathematical calculation to create a digital signature on the check. The public key transmits that signature to the party needing to verify that the sender on the e-check is authorized to make the purchase. This type of cryptography ensures authenticity in transferring funds electronically.

Authorization

• When a customer presents a paper check for payment, the check is run through an electronic scanner system supplied by a merchant. This scanner reads the banking information on the check and collects the amount of the purchase.

  Before approving an electronic check for a purchase, a business must verify that the person providing the checking account information is authorized to do so. A receipt demanding the customer's signature creates a paper trail, protecting the bank account holder from fraud. The business keeps the receipt in case discrepancies arise from the e-check purchase. Some online companies offer digital signatures, which encrypts information that cannot easily be tampered with or imitated by hackers.

Duplicate Protection

• Duplicate prevention and detection prevents a scanned e-check from posting numerous times to a customer's account. Many financial institutions use software and operational controls to make sure such duplication does not occur.