Mandate final Report

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4.3 Evaluation

The three banks involved in the pilot were asked to evaluate the system from the point of view of:

Security
Technical
Business acceptance
User acceptance and
Legal acceptance

The banks felt that the Mandate cheque offered more security in itself because of its tamperproof nature, although this could not be fully evaluated since the actual transfer of value to and from the customer’s account was not available. There are less chances of fraud, due to the fact that keys have to be exchanged between the parties and less resources needed on the bank side in checking the validity of the cheque.

On the issue of whether the customer was offered more security through the Mandate cheque system, whilst it was thought that this would offer less risk of fraud, due to the tamperproof hardware and less easy access by unauthorised users to the electronic cheque, it will not solve the problem of there being insufficient funds available when the cheque reaches the bank for payment. Whilst the payee will know the issuer of the cheque, since they will have exchanged keys, he still has no means of knowing whether the cheque will be honoured.
In view of this, one of the banks expressed concern over the endorse function which it was felt could lead to ‘chains of parties pursuing payment from each other as the issuer of the Mandate cheque has not been able to make payment.
On the specific issue of fraud it was felt that Mandate could help cut down on the fraudulent issue of cheques. However, a lot would depend on how the internal control over the system was implemented by users and any user front end for Mandate should allow varying levels of control and secondary checking/sign off before items are issued).

4.3.2 Key Management

Whilst as it stands Mandate is ideally suited to established and ongoing trading relationships, if it is used to support one-off /casual payments there will be a requirement for more security features in terms of verifying new parties from which cheques are to be received (Key Management and Certification Authority infrastructure).

On the issue of who should be providing these TTP services the banks felt that it is a service that they could, and since it is an income generating opportunity should be offering. However, there was some doubt as to the speed with which the banks might develop such services and that there may be an opportunity for outside providers offering such services and integrating them with bank services. The type of organisation offering such services would have to be trusted, such as computer outsourcing companies.

4.3.3 Technical Issues

Mandate was felt to be a good idea and technically sound.

The requirement for Windows’95 and external e-mail should not be a real barrier to the take up of such a service, although many medium sized businesses are still using Windows 3.1.1 and installation of software at one of the pilot banks had been delayed by Windows ’95 not being available.
On the point of whether Mandate could be easily integrated with current and future banking systems, the feeling was that it could, if Mandate uses existing payment mechanisms and translators to convert output into the standard formats. However, the logical integration would be with business software.

4.3.4 Business Issues

A commercial Mandate offering would need to address the business issues:

For the customer the value proposition would be:
Customer Ordering Goods
1. Require to submit payment at the time of placing the order.

2. Ability to post date the payment to reflect current credit terms between purchaser and supplier {there are two main issues why credit cards are not used by businesses: they are that the debit is made before goods are supplied and therefore there is a risk on payment being made and non receipt of goods the second is that any beneficial credit terms, e.g. 30 days from date of receipt are lost}.

3. Would be ideal if the issuing of the order and the creation to the payment could take place at the same time. The outstanding order / payment could then be held on the customer purchase ledger system until payment is advised.

4. Ability to stop payment if the goods are not supplied is required : this could be tied in to an advice to the supplier.

5. Advice if “cheque” is presented for payment before due date.
Supplier Providing Goods
1. Must be able to validate the credentials of the person ordering the goods before despatch.

2. The ideal would be to have a mechanism that guaranteed payment but I cannot see how this would be done. It could be do-able in France where it is not - by law I think - possible to over draw an account by cheque. The only other option - for new trading partners - would be to do some form of credit check at the time the order is placed pre despatch.

3. When “cheque” is cleared / presented for payment to automatically tie in with post date / customers agreed credit time scales.

4. Fully integrated with invoice / purchase ledger systems, customer credit checking and banking software, Quicken. MS Money etc. etc.

5. Integrate with customers electronic banking software.

Bank Type Issues
1. Ability to stop payments.

2. Check available funds before making payment.

As opposed to trying to clear the “cheque” in the traditional way it would be an idea to translate the information contained within the mandate into a traditional electronic transaction, e.g. Direct Debit.

It was suggested by one of the banks that to start with bank cheques (banker’s drafts) may be easier, since it would involve less parties in the process and would be valuable in cutting down on fraud in cross border business.

4.3.5 Cost Issues

With the Year 2000 and Euro requirements currently taking the vast majority of technical resources it is unlikely that any bank will deploy additional technical resource to developing at this stage. To make Mandate a commercial offering, further thought will need to be to such issues as credit, dealing with unpaid items and transfer of value mechanisms. In addition thought would be needed into how the system will integrate/interface with customers’ systems etc.

The main cost issues to the customer would be integration with existing systems: both in terms of their in-house systems for purchase ledger/account receivable, cheque issuing etc. and also potential account reconciliation systems and electronic banking. It is difficult to assess how big or small the impact might be.
With regard to how easy it would be to sell the concept to users it is difficult to assure customers that the system is secure for electronic transactions (for instance, the current debate on payments via the Internet).

4.3.6 Pan European Functionality

Making the system work with current clearing systems – particulary in cross-border traffic – it was suggested that integration to the SWIFT system would be helpful. Whatever is done should be kept simple and in line with existing systems. On the UK side an idea put forward was to have the payment – when it is to be cleared – to create a BACS transaction (like a direct debit) which would then debit the issuers account two days after, this may work using BACS EFS which would also allow a message to be sent to the issuer: perhaps as a receipt for payment etc. BACS are also working on a EURO capability.

4.3.7 Customer Benefits

The customer benefits were seen as a low cost paperless payments system that can integrate into their business systems with less risk of fraud.

Features which could enhance the acceptance of Mandate were identified as it becoming an element of an Internet Bank.

4.3.8 Legal Acceptance

The pilot participants were unable to comment on the legal aspects although it was pointed out that electronic signature must have the same ‘power’ as regular ways of signing.