Check Drafts

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?