September 18, 2000

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Digital Signatures Seal Web Deals

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Another obstacle to digital signatures is changing technology. For example, if a seller implements new digital signature technology, it will have to re-issue certificates to its customers before handling new transactions or requests. While this may slow customer adoption, recertifying is still faster than reverting to a purely paper-based model.

Where It Will Work
Best In terms of dollar value, E-Sign's biggest impact will come from the B-to-B market. Granted, digital signatures aren't the only obstacle to online marketplaces handling entire transactions online. Part of the problem comes from the lack of back-end integration to financial applications and enterprise resource planning systems. But requiring physical signatures guaranteed it would go offline, slowing the commerce process to a relative crawl.

Think of all the massive contracts, raw materials purchases, company purchases, and real-estate deals that could be consummated over the Web. E-Sign greases the business-to-business wheels. Key target industries are ones that are heavily regulated and subject to large volumes of compliance paper to complete transactions.

This covers a broad spectrum of industries. Financial service institutions can use it to make faster approvals for loans, and could expand into the business of certifying E-signatures. The insurance and health care industries can process claims and payments online, while government agencies can automate many time-consuming and paper-intensive processes. Manufacturing also stands to benefit by automating purchase approvals through the supply chain that are often dependent on faxes and phone calls.

From a financial standpoint, trading partners and their financial institutions will benefit from the increased velocity of fund transfers among the parties involved--though for a company struggling with cash flow, it may make it more difficult to stall payments to suppliers.

But more than anything, E-Sign provides a mechanism to simplify complex supply-chain relationships. As everything from raw material acquisition to shipment approval to inventory ordering speeds up, companies could drastically reduce time-to-market.

Looking Ahead
With the federal government's nod, the speed of E-commerce can increase, and some of the risks can be reduced. How fast it can go depends upon how quickly digital signatures are signed into law internationally and how the competing laws and standards are mediated.

Within the United States, 18 states had previously adopted some form of the Uniform Electronic Transactions Act, and these differences must be resolved. States still regulate many transactions affected by the E-Sign law, and there's likely to remain some regulation differences among states.

Approving the E-Sign law only creates the opportunity. Businesses can still mislead their trading partners. Relationships based on trust and mutual benefit still will be difficult to build. Technology vendors can still provide shoddy certificates without the security or authentication they promise. But the bottom line is that buyers and sellers will be able to make deals--either good or bad--more quickly.

James K. Watson Jr. is president and Carol Choksy is an analyst with Doculabs, an independent research and advisory firm in Chicago that helps companies choose technologies and strategies for E-business. You can reach them at info@doculabs.com.

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