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The electronic signature law that took effect Sunday won’t immediately affect how people conduct business online, but it is expected to eventually reduce consumer fraud and save corporations money they now spend on processing paperwork. The so-called e-sign law grants electronic signatures the same legal standing as signatures on paper. Nearly all 50 states have adopted similar laws recognizing the legal validity of electronic signatures, but those laws vary widely. The federal law offers a baseline for businesses across all states. Japan and the European Union are expected to enact similar laws next year. One major consequence the U.S. law is expected to have is reducing fraud. It will close a legal loophole that has cost merchants millions of dollars to handle online transactions that were disputed, according to experts. “Only a small percentage of all transactions are online, but more than 50 percent of the disputes [merchants] have to handle have to do with online transactions,” said Rick Dalmazzi, president and chief executive of Certicom, a company that offers digital signature technology. “For example, a friend of mine had an online business in Toronto selling snowboards. About 20 percent of the transactions went bad, and he had to close his business down,” Dalmazzi said. “He would ship out a snowboard, and the people who took delivery of it would deny they made the order.” The problem in those cases was that the merchants couldn’t prove that the person who used the valid credit card online was actually the owner of the card. The e-sign law largely eliminates the non-repudiation issue, because it adds another level of security, Dalmazzi said. The law requires a binding agreement between the two parties conducting the transaction. The law does not, however, specify how a valid electronic signature may be created. While it covers any kind of electronic technique that the parties agree will serve as a signature, that agreement does not address all security concerns, said Thomas Crocker, a partner at Alston & Bird in Washington. For instance, parties could agree that a user name and password constitutes a signature. However, user names and passwords can easily be compromised. “In staying neutral, they have put the signer at potential risk,” says Bill Holmes, vice president of marketing at Litronic, a company that offers digital signature technology and services. An electronic signature is a broad term, he said, whereas a digital signature is used in a specific type of digital certificate that authenticates the signer’s identity. Many financial institutions and companies conducting business-to-business transactions have been using public key infrastructures, which allow for digital signatures and authentication of all parties involved in a transaction. However, those parties would have to agree to sign documents confirming the validity of the digital signatures. Nevertheless, as the law stands now, the electronic signatures will be automatically binding and fully legal, meaning more b-to-b companies will jump on board. “Many corporations were already well on their way to using and accepting digital signatures,” noted Art Coveillo, president and chief executive at RSA Security. “This just gives it the legal umbrella.” Business-to-consumer companies that have shied away from digital signatures are expected to be more likely to use them now, not only because there is no longer any legal ambiguity, but because of the cost savings that online transactions can deliver. For example, it can cost a bank $25 to $30 to issue a letter of credit needed for large contracts, said Sathvik Krishnamurthy, VP of marketing and business development at Valicert, another company that secures electronic transactions. “That adds up to a substantial fee that banks have to incur,” he says, adding that “The combination of saving paper and the reduction of manual errors that can occur with a paper-based process would bring that cost down to $5 per letter.” By offering online mortgage transactions, lenders can cut their processing costs from as much as several thousand dollars to several hundred dollars, according to Mir Hajmiragha, founder and chief executive of DocuTouch, a digital signature application service provider. For consumers it’s a matter of convenience. Instead of having to physically sign and mail in documents to register for services such as online trading, mortgage lending and credit card applications, consumers can get same-day service. “I just bought a house, and closing escrow was a very painful experience,” said Robert Shields, director of strategic marketing for Rainbow Technologies, which offers digital signatures. “I had to take several hours out of the day to flip through papers and sign it. It would have been nice if I could have just done this online.” Experts agree that the changes in online business practices won’t happen overnight. Says Mike Rothman, executive vice president at Shym Technology, a provider of electronic signature technology, “It’s still pretty complex and hard-to-use technology that needs a lot of work before we get to the point of everyone signing documents all over the place.” Related articles from The Industry Standard: Signed, Sealed, Delivered The Shipping News Andrew Duncan: 21st Century John Hancock Copyright (c)2000 The Industry Standard

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