E Commerce Bank Check Drafts

Check drafts are a check written by the person you are paying against your bank account using check information you provide. It is processed by your bank (and the funds transferred into a holding status in thier bank) and reported to you on your bank statement. If you do not object to the charge, the funds are released to the payee and the transaction is complete.

Electronic drafts are not new. Companies have been using them for years. Regulation and implementation costs were reduced in 1996 when new banking laws paved the way for anyone to accept electronic drafts.

The laws that changed are in the Uniform Commercial Code, Title 1, Section 1-201 (39) and Title 3, Section 3-104, and 3-403; Code of Federal Regulations, Title 12, Chapter U, Part 210; and Regulation J., Federal Reserve Bank, Part 2, Sections 4A-201 to 4A-212.

In a nutshell, these laws define a "Negotiable Instrument" which used to required a signature to be binding. With the changes in these laws a signature is no longer required. All that is required is a verbal or written authorization which can be received via phone, fax, email or internet orders.

The special "Bank Code" printed on the bottom of all U.S. checks and ecommerce check drafts uses the MICR font. In that, is found the routing number, bank account number, and other information.

Samples

Service Providers:

Advantages - (why drafts are better) Disadvantages - (Why Credit Cards are better)
for the
Supplier

  • Can't be contested after time limit
  • No encription required
  • Customer not worried about theft of card number
  • No 2-3% fee

  • Consumer must be convinced that:
    • encription not required
    • bank will not freak
  • Harder to verify funds, etc..
for the
Consumer

  • Drivers license not required
  • No encription necessary due to sequetial numbering
    bank statement reporting / right of denial
  • May save 2-3% if discount offered for use vs CC
  • Quick, if bank conformation is available

  • Have a limited amount of time to contest
  • Is my bank going to:
    • charge me a fee like ATM?
    • bounce the draft?

see also: