Digital Signatures Create Market Potential

SAN MATEO (07/24/2000) - It wasn't exactly John Hancock signing in a new era of American independence in a room full of colonial separatists. But when President Bill Clinton used a smart card last month to sign the digital signatures bill into law, he just may have been ushering in a revolution of the digital kind.

Although many called the act symbolic, the comfort that businesses around the globe derived from the formality could have a widespread economic impact. And so what if the president first signed the bill in the traditional manner: ink on paper. In the business world, symbolism can go a long way in allaying fear of change.

There may be businesses that take rise from the creation of this market, but perhaps more important is the boost that the bill promises for companies that do business online. Still, the process of putting customers at ease with buying homes, trading stocks, or contracting loans online without the comfort of a hard copy is easier said than done.

"This gives us a reason to put the technology into place, because it's good for our business," says Jim Creamer, co-founder and CEO of LoanGenie.com, in Irvine, Calif. "We are going to push it, but it will be difficult to get customers used to it."

Most companies that use digital signatures stand to gain a significant cost savings from the technology. But don't expect the savings to trickle down to the consumers, Creamer says.

"It has the potential to create savings, but I don't think that it will drive down cost for the customer," Creamer says. "There will be companies that pass on rebates to encourage customers to use the technology, though."

Besides being a potential boon for e-business, the bill is spurring on an already growing market for security and encryption and forcing companies large and small to revisit their contract policies and procedures. If it was ever in doubt, digital signatures are here to stay.

Webster's defines a signature as "the name of a person written with his or her own hand." Lawyers, not surprisingly, argue otherwise.

"What Congress did was much more symbolic than it was substantive," says Benjamin Wright, a Dallas-based attorney and author of The Law of Electronic Commerce. "The law has not changed, because the law has always said that a signature is a symbol adopted with someone's intent to comply. It could be an X, a thumbprint, or even your company letterhead. The legal issue has always hinged on what you intend."

So, in theory, digital signatures have already been widely used, both in and out of court, to seal contracts and the like. But when it comes to big transactions, there has always been a paper document to make it official, even for deals that originate online. In passing the digital signatures bill, Congress is expecting that companies will begin to wean customers and business partners off of the paper backup. Soon "vast warehouses of paper will be replaced by servers the size of VCRs," according to President Clinton.

But before executives the world over kiss their paper-cut days goodbye, there is still a significant amount of gray area accompanying this bill. Nowhere in the legislation does it go into detail defining what constitutes a legitimate, safe, secure digital signature. And where Congress leaves off is where industry picks up, with a slew of young companies racing to establish the new standard in secure digital signatures.

All companies using digital signature technology will need to decide how secure they want their transactions to be. A signature could comprise a smart card, a thumbprint, a retinal scan, a voice-recognition test, or all of the above, depending on the type of transaction.

One company attempting to establish itself as the standard for digital signatures is signOnline. By working with verification companies such as VeriSign and credit checkers such as Experian, signOnline is hoping to become the standard digital signature. After a lengthy initial verification process, signOnline will install a digital certificate on an end-user's desktop, to be used as a kind of e-wallet for future transactions.

"We're going to set the standard because we are positioned to do it," says Brad Harvey, co-founder of Irvine, Calif.-based signOnline, regarding why the businesses themselves will likely set the standard. "The government doesn't want to get into [setting standards]; they want to let the marketplace set the parameters of what is acceptable."

Also excited about the new legislation are companies such as PenOp, in New York. PenOp provides the software to accompany the many different forms of personal authentication, such as biometrics and passwords. These things are crucial in the legal sense, for they add what Kirk LeCompte, vice president of marketing and product management at PenOp, calls "the intent to the audit trail."

"There always needs to be an auditable event, something that lets people know why this person is signing," LeCompte explains.

The PenOp Signature Series is designed to work in conjunction with hardware products, such as signing pads or digital fingerprint recorders, to provide an interface that helps ensure that the signee understands what it is he or she is signing when using the device. In essence, it makes an online transaction more legally binding by eliminating possible gray areas.

Meanwhile, some experts are expecting more legislation to come, establishing the standards that the market is currently hoping to set. Margo Tank, counsel to the Electronic Financial Services Council, the trade association that played a pivotal role in getting the digital signatures bill passed, says more government guidance may be on the way.

"Companies need to be putting their own security procedures into place, but there is likely some more regulation coming from the Federal Reserve Board or the FTC [Federal Trade Commission]," Tank says.

Whether the bill that President Clinton signed into law last month actually furthers e-commerce or whether history simply records it that way, the business world could be seeing a lot less paper in the future as a result of the legislation and advances in digital signature technology and standards.

The digital signature race is on

Here are the Web sites of some companies that hope to capitalize on the new digital signature legislation.www.isignonline.com: signOnline, desktop digital signature organizerwww.onsign.com: onSign.com, signature conversion softwarewww.penop.com: PenOp, signing softwarewww.silanis.com: Silanis Technology, signature conversion software.

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