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Mandate final Report


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2. The Project

2.1 Background


The Mandate II project took as its foundation a technical solution which had been developed to provide a generic method of achieving electronic negotiability under the EC TEDIS Programme in 1994. The original solution had been designed so that user placed a minimum amount of trust in the Trusted Third Party (defined as a Functionally Trusted Third Party) this being achieved through the implementation of the solution on tamper-proof hardware.

(Mandate Final Report – TEDIS Programme 1994)


Taking this basic concept the Mandate II project set out to build on these principles and designed a specific implementation, the electronic cheque, to trial the concept both from a technical and business perspective, scooping out the public key infrastructure required for a commercial application.

2.2 Objectives


The project concentrated on the following major functions:

2.2.1 Document transactions


The document chosen was the electronic cheque. Although the paper cheque is no longer used as a truly negotiable instrument for which the Mandate solution was initially designed, it does require that each cheque is unique, to prevent double encashment, and this is one of the attributes that can be provided through the Mandate technical solution. To some extent the negotiability function has fallen away because of the risk of fraud when a cheque is negotiated many times, and providing a more secure mechanism may then enable true negotiability to be reintroduced.

2.2.2 Inter-Domain Communication


The information technology requirements were kept as simple as possible in order to make it relatively easy for the pilot participants to become involved. The requirement was for a stand alone PC with Windows ’95 or Windows NT. Communication of the electronic cheques and the requisite public keys took place over the Internet. Public keys were also made available to all participants via the Mandate Web Site hosted by Cryptomathic.
Each bank acted as a Trusted Third Party for the purposes of creating the hardware tokens for the pilot participants and for the recovery of lost cheques.

2.2.3 Key Management


Key management aspects were implemented as part of the project and the pilot showed how these issues could effectively be managed in a small, closed user group. However, it became clear that some further development of a key management scheme that could operate in a full open commercial environment would be necessary and we have attempted, in this final report, to outline possible methods by which this might happen.

For the technical solution each participant needs two key pairs (related to the MandateTM he is using), one key pair for signature and a second key pair for encryption. The user writes a cheque and signs it with his digital signature; he then encrypts this signature with the public encryption key of the person to whom he is issuing the cheque. The person receiving the cheque therefore decrypts the signature using his private encryption key and the cheque is accepted. The same process occurs when the recipient of the cheque sends the cheque to his bank for payment to his account.


Therefore, before a cheque can be sent to someone, the sender must be in possession of the public encryption key of that person, and some management of the distribution and availability of these keys needs to be implemented.
The objectives were defined as :

2.2.4 To achieve functionality with a European Perspective


The first task of the project consortium was to look for a specific application to which the technical concept could be applied. Initial discussions took place with financial institutions in the UK, Germany, France, Belgium, the Netherlands and Denmark in order to ascertain where the concept could best be implemented. After much discussion, and a workshop session held in Brussels in May 1997 involving Kredietbank, Belgium, Beroepskrediet, Belgium, Dresdner Bank, Germany, HSBC, UK and ING of the Netherlands it was decided that the technology could best be used to implement an electronic cheque in the business to business environment, particularly for cross-border trade.
This particular sector was picked because:


  • Whilst cheque usage in the retail sector is reducing due to the increased use of credit and debit cards, usage of cheques between commercial trading partners is, in fact, increasing.

  • There are electronic alternatives, such as electronic funds transfer, but these do not appear to be attracting the usage that might be expected - one of the reasons is that there is very little control or indeed knowledge of what is happening to the funds by the customer for a period of up to 10 days in the case of cross border transactions. The cheque as an instrument of payment allows the issuer to retain control over the funds until the cheque has been paid in to the bank by the recipient and the clearing process has taken place

  • Electronic cheques may appeal to small and medium sized enterprises, who had not invested large amounts in the automation and integration of their payment and accounting systems, but could use the Mandate electronic cheque as a stand alone system initially.

Different countries have varying cheque systems which have grown up through custom and usage over the years. Whilst in the different jurisdictions there are laws which cover the usage of cheques, the ‘electronic cheque’ would be considered a new instrument and would therefore not be covered by these laws. However, we needed to develop the electronic cheque to look like the paper cheque to create an element of comfort with the users of the system and to achieve certain functionality which was felt to be essential.


The implementation of the electronic cheque is interesting from a European perspective not only because of the length of time that it can take for payments to be made across border, but also because of the amount of time and effort that is currently being expended by financial institutions throughout Europe on the implementation of the Euro as a single European currency. This will no doubt have a profound effect on the European financial markets and may open up the opportunities to new payment mechanisms.

2.2.5 Create a pan European Functional Design


The electronic cheque itself was designed to fulfil the requirements of both those banks who chose to pilot Mandate and those who opted to take an observing role and is specified in the Functional Requirements Document. However, in order to support the electronic cheque, there needs to be an infrastructure to provide the requisite key management and indeed mechanisms to be able to recover cheques in the case of loss or damage of the hardware token on which the cheques are stored. This is a new type of service, which is now starting to appear in the business world of today. Part of the task of the project consortium was to look at how such issues could be tackled and what the optimum solution would be for such TTP services as Certification and key management.

2.2.6 Define Assessment Criteria to Judge the Effectiveness, economics and acceptability


Whilst the project set out to define and implement a system and the related infrastructure for the secure transmission of electronic payment instructions, it also needed to ensure that the concept would be acceptable and usable in the business environment.

Thus a set of headings was defined and a series of questions devised to establish whether the concept would fit into the business environment, and how it could be enhanced to offer more value than the current paper system.


The evaluation covered the following areas:

A full set of questions can be found in Appendix 5. The answers have been consolidated and appear in the Pilot Evaluation Section 4.3.


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