IBM Develops First Electronic Checking System with Major Banking
Consortium

San Francisco, September 21, 1995.....IBM today joined with the
multi-industry Financial Systems Technology Consortium (FSTC) team for a
premier prototype demonstration of the first electronic checking system
designed for electronic commerce. The new system was announced by FSTC on
August 22, 1995.

IBM's technological contribution to the FSTC electronic checking system is
another example of the company's network-centric computing (NCC) strategy
at work. NCC is a key IBM strategy to link customers, suppliers and others
via applications -- including those supporting electronic commerce --
running on networks of networks around the globe.

IBM's prototype system, a secure hardware and software system for
electronic commerce, is demonstrated in the merchant component for this
FSTC prototype. It allows the merchant to verify the digital signature of
the payor with a public key, then electronically endorses it with the
merchant's own digital signature. This signature is a mathematical sum of
characters encrypted with a private key that only the merchant knows. The
check is then sent on to the bank.

"One of the most valuable features of the electronic checking system is its
improved security over paper checks," explained Elaine Palmer, Computer
Scientist at IBM's T.J Watson Research Center in Yorktown Heights, N.Y.
"Security is a major concern of everyone interested in electronic commerce
on the Internet -- from large banks to individual shoppers."

The hardware portion of the IBM Research prototype consists of a secure
co-processor system, which is basically a small, self- contained,
tamper-resistant computer with its own processor, secure memory,
encryption hardware and a time-of-day clock. This co- processor is
designed to fit into existing workstation and personal computer systems.
It allows for safe storage of secret information such as private
encryption keys or sensitive programs.

"Essentially, it takes the check, uses a cryptographic technique to verify
digital signature authenticity from the buyer/payor, endorses the check
with the merchant's digital signature and then sends it back out through
the host workstation and on to the bank. The idea is to both verify and
encrypt signatures to prevent any tampering with the check." adds Jeff
Kravitz, Computer Scientist, at IBM's Research Center.

According to the Research team, the overall electronic check system works
as follows:

A home computer shopper, who, for example, wanted to send a gift to
someone, could handle the transaction from his home or office via the
Internet. He need only determine what he wants from the merchant, obtain
the electronic check form automatically with information such as
merchant's name and amount and sign the check with his digital signature.
That check is then sent to the merchant who verifies the signature,
endorses the check for deposit, and sends it to the bank. The bank
verifies both signatures, checks for accuracy, clears the check, reformats
the check to meet their clearing systems process, debits the account and
pays the merchant. Meantime, the gift is on the way.

The researchers continued to explain that the IBM Research secure
coprocessor is also being developed to assist merchants and banks who need
to process a large number of checks with a great amount of privacy. It is
designed for high-speed bulk encryption for privacy of deposit
transmissions to the bank.

Palmer and Kravitz believe that, although there are still some obstacles to
overcome, such as regulatory issues: "We are really just at the beginning
stages, but we are proving that electronic checking is possible,"
 
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