Electronic cheques address the electronic needs of millions of businesses, which today exchange traditional paper cheques with the other vendors, consumers and government. The e-cheque method was deliberately created to work in much the same way as conventional paper cheque. An account holder will issue an electronic document that contains the name of the financial institution, the payer’s account number, the name of payee and amount of cheque. Most of the information is in uncoded form. Like a paper cheques e-cheques also bear the digital equivalent of signature: a computed number that authenticates the cheque from the owner of the account. Digital chequing payment system seeks to extend the functionality of existing chequing accounts for use as online shopping payment tools. Electronic cheque system has many advantages:
- They do not require consumers to reveal account information to other individuals when setting an auction.
- They do not require consumers to continually send sensitive financial information over the web.
- They are less expensive than credit cards and
- They are much faster than paper based traditional cheque.
But, this system of payment also has several disadvantages. The disadvantage of electronic cheque system includes their relatively high fixed costs, their limited use only in virtual world and the fact that they can protect the users‟ anonymity. Therefore, it is not very suitable for the retail transactions by consumers, although useful for the government and B2B operations because the latter transactions do not require anonymity, and the amount of transactions is generally large enough to cover fixed processing cost. The process of electronic chequing system can be described using the following steps:
- Step 1: a purchaser fills a purchase order form, attaches a payment advice (electronic cheque), signs it with his private key (using his signature hardware), attaches his public key certificate, encrypts it using his private key and sends it to the vendor.
- Step 2: the vendor decrypts the information using his private key, checks the purchaser’s certificates, signature and cheque, attaches his deposit slip, and endorses the deposit attaching his public key certificates. This is encrypted and sent to his bank.
- Step 3: the vendor’s bank checks the signatures and certificates and sends the cheque for clearance. The banks and clearing houses normally have a private secure data network.
- Step 4: when the cheque is cleared, the amount is credited to the vendor’s Account and a credit advice are sent to him.
- Step 5: the purchaser gets a consolidated debit advice periodically.
E-cheque provide a security rich Internet payment option for businesses and offer an easy entry into electronic commerce without a significant investment in new technologies or legal systems.