The last two years have been anything but business as usual. When business veers toward unusual — for whatever extenuating circumstance — those that adapt quickly have a leg-up on the challenge. For banks and credit unions, digitizing core services is a smart way to do this.
In-person meetings have traditionally been the standard way of finalizing business from auto loans, to mortgages, to account openings and more. But you don’t need to slide paper contracts across a desk anymore with electronic signature (eSignature) technology. Here’s what you need to know about how eSignatures work and how they help financial institutions.
The legality of electronic signatures for banks
In 1999, the Uniform Electronic Transactions Act (UETA) established the legal equivalence of electronic records and signatures with paper writings and signatures at the state level. To date, New York is the only state that has not adopted a version of the UETA. New York instead has the New York Electronic Signatures and Records Act (NYESRA), which provides that “an electronic signature may be used by a person in lieu of a signature affixed by hand. The use of an electronic signature shall have the same validity and effect as the use of a signature affixed by hand.”
The E-Sign Act was passed in 2000 as a federal regulation to resolve disputes between different state laws regarding electronic signatures. It says that each state may accept or reject guidelines in the UETA, but it must have some laws that validate electronic signatures.
The net effect of these rules is that every jurisdiction in the United States has substantially the same rules for the use of electronic signatures.
Considerations when using electronic signatures for banks
Beyond familiarity with the law, it’s important for banks and credit unions to think about how electronic signatures affect their industry in particular. Here are three factors to consider:
- Risk: It’s important to weigh state and federal mandates against your organization’s appetite for risk. Many banks sell or collateralize loans. What if a loan electronically signed in New Jersey under UETA is sold in New York where a different state mandate applies? Consider your products and different lines of business. A hybrid model might be appealing. A bank might accept eSignatures on loan documents that it holds independently, but require physical signatures in other lines of business that cross state lines or involve separate entities.
- Authentication: To ensure authentic eSignatures, financial institutions can require identity verification of the signer. This can be done with a Certificate Authority (CA). CAs independently verify a customer’s identity before signing and produce a digital certificate as proof. Community banks and credit unions can become CAs, but third-party solutions are often a better option at scale.
- Storage: Compliance goes beyond state and federal law. It’s important to set up technology that keeps digital documents safe. Here are questions to consider:
- How will eSignature documents be stored?
- What security protocols will protect these documents?
- How will these documents be managed or shared internally?
- What disaster recovery systems do we have in place? Where are they located?
These considerations might require technology upgrades, internal training, or hiring new talent to ensure that eSignatures are handled properly.
Benefits of using electronic signatures
Don’t let legalese deter you: there are major upsides to eSignature technology. The right tools can help financial institutions improve the customer experience. But first, let’s talk about some more practical matters. Strictly on the business side, eSignatures reduce administrative costs. For banks and credit unions, this might look like:
- Reduced processing times for loan applications and account openings
- Reduced document errors
- Reduced administrative work, freeing up time to build customer relationships
- Reduced costs in scanning, imaging and storing paper documents
Additionally, eSignatures are more secure than “wet” signatures. According to the American Bar Association, eSignature technology leaves digital trails — the ability to see who, when and where somebody signed a document. Additionally, many eSignature tools offer digital encryption and identity verification methods (e.g. biometrics, multi-factor authentication, etc.), which reduces the risk of signature fraud.
Going digital doesn’t have to be black and white. For example, offering the convenience of signing a document with eSignature while providing access to help from a real human (as opposed to a bot), can be the perfect mix of digitization and a human touch.
A thriving business relies on customer loyalty and having the solutions to support those customers. eSignatures help financial institutions to bring more offerings online, and offer security, transparency and a customer experience that was unimaginable just a short while ago. As technology continues to evolve, it’s important to keep pace with the solutions that are taking the industry — and customers — into the future.