What is an Electronic Check
An electronic check, also referred to as an e-check, is a form of payment made via the internet, or other data network, designed to perform the same function as a conventional paper check. Since the check is in an electronic format, it can be processed in fewer steps. Additionally, it has more security features than standard paper checks including authentication, public key cryptography, digital signatures and encryption, among others.
An electronic check is part of the larger electronic banking field and part of a subset of transactions referred to as electronic fund transfers (EFTs), which includes not only electronic checks, but also other computerized banking functions such as ATM withdrawals and deposits, debit card transactions and remote check depositing features. The transactions require the use of various computer and networking technologies to gain access to the relevant account data to perform the requested actions.
Development of the Electronic Check
Electronic checks were developed in response to the transactions that arose in the world of electronic commerce. Electronic checks can be used to make a payment for any transaction that a paper check can cover, and are governed by the same laws that apply to paper checks. This was the first form of internet-based payment used by the U.S. Treasury for making large online payments.
Benefits Associated With Electronic Checks
Generally, the costs associated with issuing an electronic check are notably lower than those associated with paper checks. Not only is there no requirement for a physical paper check, which costs money to produce, but electronic checks do not require physical postage in cases of payments being made to entities outside the direct reach of the entity issuing the funds. It is estimated that while a traditional check may cost as much as $1 to issue, an electronic check costs closer to $0.10. Electronic checks also come with a lower risk of the associated funds being stolen, as there is no tangible item to intercept. Further, there are multiple levels of authentication to help ensure funds are routed properly.
Common Electronic Checks
One of the more frequently used versions of the electronic check is the direct deposit system offered by many employers. It is an electronic method of sending an employee’s wages directly into the employee’s bank account. Additionally, taxpayers due a refund on federal tax returns can elect to receive a directly deposited electronic check from the Internal Revenue Service (IRS) instead of having a physical paper check sent through the mail.