InformationWeek

September 18, 2000

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Digital Signatures Seal Web Deals

Legal status for digital signatures will mean faster commerce. Get ready.

By James K. Watson Jr. and Carol Choksy

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he passage of the Electronic Signatures in Global and National Commerce Act, nicknamed E-Sign, gives electronic signatures the same legal status as handwritten ones. This sounds simple, but it translates into great opportunities for actually completing high-stakes transactions, agreements, and approvals on the Web. With digital signatures, the velocity of fund transfers will increase, the cost of acquiring customers will drop, and entire transaction processes, such as procurement, can be automated.

The law will accelerate the growth of E-commerce in the business-to-business and business-to-consumer markets. Concerns about the legality and security of digital signatures kept many companies and consumers tied to hard copies for at least part of their transaction. While a growing amount of commerce is being supported online, many transactions still require companies to physically sign contracts or other legal documents and ship them back and forth to seal a deal.

The legal acceptance of digital signatures means businesses and individuals will be able to finalize deals online with less time, cost, and effort. Reducing--or in some cases eliminating--printing and shipping costs is significant. But more important is the effort and time cut out of finalizing a contract. Complex, online business-to-business transactions can become a real-time affair.

The biggest impact of digital signatures will come in financial services. Think of all the transactions that currently require physical signatures--mortgages, insurance policies, service contracts, and many business-to-business transactions. The cost of signing up a single customer can be significantly reduced because E-Sign enables these transactions to be completed online.

E-Sign will also have big payoffs for vertical online exchanges. For many transactions initiated through exchanges or marketplaces, the electronic interplay stops well short of completing the transaction.

Eventually, the trading partners step offline--and therefore off the exchange--to complete the paperwork and financing. E-sign gets around this obstacle, and it also simplifies the process of third-party legal validation for deals involving more than one trading partner.

How It Works
Digital signatures can be any form of electronic seal agreed to by the two parties. The most common approach relies on digital certificates and encryption. The encrypted signature can reside on a machine, be carried on smart cards, be authenticated via passwords or personal identification numbers, or even be a biometric authentication, such as a fingerprint or retinal pattern.

A number of vendors offer digital signature technology today, including ApproveIt, Cyber-Sign, and PenOp. In addition, service providers such as Critical Path Inc. and VeriSign Inc. offer digital signatures as part of their secure file-transfer services. Now that digitally signed documents are legally binding, expect the ranks of vendors offering E-signature services to grow.

Legal status is one big step for digital signatures, but trust is the next. Trading partners need to have a great deal of trust in the technology, especially in purelly electronic transactions in which the two sides haven't met or even spoken to one another. Technology needs to establish credibility, security, and trust.

That's where certification authority technology comes in--establishing the parties as who they say they are. Key vendors are Entrust, RSA Technologies, Silanis, and Xcert. Service providers, such as Baltimore Technologies, GlobalSign, and VeriSign, act as third-party certification authorities to issue certificates to trading partners and validate them before transactions are executed. There's also a role for certification authority clearinghouses or consortia such as Identrus, which validates the certifications of the buyers' and sellers' banks.