The processing of electronic checks is performed much like paper checks. Electronic check payment processing involves the use of electronic checkbooks. An electronic checkbook is a device in the nature of an electronic token. It contains encryption related tools, certificates, public and private key pairs, check processing software unlocking utilities, and those that perform other functions. It also can help maintain the log of transactions securely.
Whenever electronic check payment processing transaction is to be initiated, a blank electronic check appears on the payer’s screen. The memo field, the date field, and the Automated Payment processing setup amount are all filled-in. The step to make the signature on the e-check involves insertion of the electronic checkbook into the check reader. The check reader is a check processing machine. The payer then needs to unlock his checkbook by entering the PIN. The serial number of the electronic check is automatically filled in by the checkbook device.
The entire check is read by the reader and then the digital signature is attached. The log from the data in the electronic check is maintained and the copy of the signed electronic check can be stored in record by the originator. The digital signature can be validated at any time by online verification for authentication of the source.
The automated clearing house (ACH) network provides for inter bank clearing of electronic payments for participating banks and other financial institutions. The ACH operator sorts ACH files that are received from member banks according to paying bank and originating bank branches. Totaling of the accounts is performed and the accounts of member banks are credited or debited accordingly.
ACH operations are performed batch wise. Money transaction completion generally takes a maximum of 72 hours. In case of insufficient funds in the payer’s account, a return notification is sent back to the originating bank branch.
National Automated Clearing House Association (NACHA) rules related to the operation of electronic ACH check processing place the responsibility on businesses of their own customers’ identification authentication. Some other responsibilities of businesses include having in place systems for verification of routing numbers, security encryption, and annual security audits.
ACH based electronic check payments made through the Internet have grown steeply over the last few years. Electronic check payment processing is cheaper and faster than that of paper checks.
Electronic check payment processing makes use of Financial Service Markup Language (FSML) to structure documents. It also makes use of digital signatures for identification of the check signing account holder. Private and public keys help in the verification of the identity of the account holder.