As the world continues its journey to going paperless, an increasing number of banks are adopting electronic signature technology for new account openings, loans, disclosures and other transactions.
Interest in electronic signatures is driven by customers. They enjoy the convenience of doing business on a variety of devices, without having to go to a bank branch to sign documents or wait for “snail mail.” In addition to enhancing customer satisfaction, the technology offers significant benefits for banks.
From a bank’s perspective, electronic signatures offer the cost savings that come with eliminating paper as well as the ability to close transactions more quickly. The end result? Your bank can improve revenue turnaround and cash flow.
Electronic signature systems can also reduce errors. For example, a good electronic signature system won’t allow customers to submit documents until they’ve signed or initialed them wherever required. And automating the process ensures that the parties are reading the documents’ latest versions.
Electronic signature systems also can enhance compliance. They make it easier and faster for customers to sign off on required disclosures and will alert the bank if documents are missing.
Electronic signatures are governed at the federal level by the Electronic Signatures in Global and National Commerce Act (ESIGN) and, in most states, the Uniform Electronic Transactions Act (UETA). (The few states that haven’t adopted the UETA have their own electronic signature laws.)
ESIGN defines electronic signature as an “electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.” Customers might click an “I agree” button, type their names or passwords, or take some other action to indicate their intent to sign.
Generally, in order for electronic signatures to have the legal weight of a traditional ink signature, the parties must agree to use electronic records in lieu of paper. ESIGN and many states’ laws require banks to provide a consumer with certain disclosures and to receive the consumer’s written consent. The consumer should consent, or confirm consent, electronically using a method that demonstrates his or her ability to access and sign electronic records.
Dozens of vendors offer electronic signature solutions that comply with the letter of the law. But to ensure that electronic signatures hold up in court, your system should incorporate certain best practices, such as:
- Requiring users to establish their identities with strong authentication methods (for example, username and password plus a passcode sent via text message) before electronically signing a document,
- Using secure encryption to prevent unauthorized access to electronic records,
- Creating a detailed audit trail, including time stamps, of each step in the signature process (ideally, showing what the user saw and what actions he or she took every step of the way),
- Ensuring that the signature is permanently linked to the document being signed,
- Affixing a “tamper-proof seal” to documents, so they can’t be altered after they’re signed, and
- Requiring users to sign or “initial” every required line before submitting a signed document.
To ensure customers are comfortable with the process, integrate electronic signature solutions with your existing websites, customer portals and applications. A familiar user interface will help build trust in the system.
Testing the waters
If you’re considering an electronic signature system, there’s no need to implement it all at once for every process or document. Consider running a “pilot program” before rolling it out throughout the organization.