Sign of the times

e-signatures are key to shaping the way financial services business will be transacted in the future. They have the same legal status as handwritten signatures and so are able to provide the same level of trust as the traditional signature for online transactions. As a result, they are already helping to relieve consumer and business fears of the internet and other new media by providing reassurance that an online transaction is genuine.

In addition, as e-signatures may be used to verify and confirm new business transactions or changes to existing ones, it is now possible to streamline the process for online financial services, making for a more convenient and quicker service and reducing the paper trail significantly.

They reduce the need for confirmation, traditionally supplied to an insurance provider on paper, before an insurance policy may be established or changed. For example, a birth certificate, marriage certificate, even income details, may all be confirmed by an e-signature. As a result, online financial services become more user-friendly and cost-effective.

The Electronic Communications Act, which outlines the legislation covering e-signatures, does not give a definition, leaving it open for industry and business to adopt e-signatures appropriate to the online transaction required. A password or user-id may be classed as an e-signature and these are already used for many online transactions. But where information is sensitive, or the level of funds to be transferred is substantial, a greater level of confidence is required so an e-signature in a digital form may be more appropriate.

A digital signature consists of thousands of lines of code, unique to an individual, which clearly identifies them to a chosen third party. This form of signature provides reassurance that a person buying online or a person agreeing to a business transaction is the person they say they are. This gives a greater level of proof of identity than is possible with a standard email transmission. The level of coding makes replication of the e-signature impractical and, unlike a written signature, an e-signature cannot be disputed so fraud is almost impossible.

Within financial services, e-signatures in the form of user-id and passwords are already widely used by customers to access special services. This enables users to inform a provider or their IFA of changes to a policy including details such as the change of term or payment, notification of change in personal details or bank details and confirmation of income or salary details. They are also widely used by advisers, where passwords are used as identification, similar to an agency number, to transfer information on clients or the business to providers via dedicated websites or IFA portals.

As confidence in new technology grows, more business will be conducted electronically, either over the internet, by digital TV or mobile phones and the awareness and acceptance of e-signatures will become more commonplace.

The concept of using an e-signature is new, but already consumers are seeing the benefit of having just the one personalised e-signature to cover all their online transactions. Users are increasingly fed up with remembering different passwords for bank accounts and credit cards, with online passwords fast becoming a similar burden. Concern over the security of passwords is increasing too, as they can be intercepted or easily forgotten.

Finding solutions

One solution that has recently become available, enables individuals to register personal information, including credit card details with one company, but then transact business online with a range of companies. Personal details remain totally secure by using a personal digital signature. This is based on two components; a 'public key' which is provided by the trusted company and is sent online to companies the user wishes to transact with. This is then encrypted to allow access to an individual's 'private key' which can only be decrypted if they hold the 'public key'. The digital key can be stored on a smart card or as a digital certificate on a computer.

The digital signature is transmitted to other parties when required and enables individuals and businesses to verify they are dealing with the right person by a correct match of the digital code. It will take some time for public key infrastructure, (PKI), verification and completion of online transactions to be an accepted method of doing business, but its implementation is already well on its way.

The Royal Bank of Scotland became the first bank to use digital signatures, issuing them to companies using its car leasing business. The bank sent out digital certificates to its business customers providing them with a unique proof of identity. This allowed trading partners to exchange digital certificates enabling them to do business with each other online without complications.

Setting standards

Other initiatives include a project by 35 of the world's largest banks, called Identrus. The aim is to establish international standards for digital signatures. Vodafone is running a trial of digital signatures for mobile phones in a joint project with the Department of Trade and Industry. Meanwhile, Royal Mail is working with UK Smart to develop digital certificates for members of the public to shop, apply for a mortgage or buy insurance.

Within the insurance sector, industry bodies such as the Association of British Insurers (ABI), British Banker's Association (BBA) and Origo are working towards an agreement on standards for the implementation of digital signatures. Trials are also in place on the use of digital certificates that will enable advisers to transact business across the market, making online trading much easier. Each adviser needs just one digital signature to trade with any company online, rather than the several different passwords currently required. Moving money, or agreeing to contracts, which are encrypted by use of the digital signature, will make business transactions in the future more secure and quicker as they will be completed immediately. Agreed standards for e-signatures should be available later this year and then the cost-effective implementation of digital e-signatures across the financial services sector will begin across the market, rather than the selective implementation that is currently taking place.

Taking advantage of e-commerce developments and overcoming legal and compliance issues is already possible and you can buy financial service products such as ISAs, term assurance and stakeholder pensions online, without the need for a conventional or e-signature.

Take term assurance as an example. Using an IFA portal comparable quotation service or a dedicated extranet, the IFA is able to complete and submit an application totally online. The online application is designed to ask only relevant information for a particular client and incorporates an interactive underwriting process so that over 50% of all online applications may be accepted immediately, without the need for further medical evidence. With direct debit payment details also entered online, life assurance can be arranged and the policy details printed off the computer screen to pass to the client without the need to wait for postal confirmation.

Several companies are offering such services and the reaction to these new facilities has been exciting. An increasing number of IFAs are registering to use these services, as well as requests for a consumer version of online services to be available for use on IFAs' websites.

The development of online services, making the process of buying financial services products easier, means the IFA is able to offer a more efficient service to customers. Plus, there is the business advantage of providing a service not available via other distribution channels.

Work in progress

Work continues on the development of various forms of e-signature with the aim to establish a form and method of delivery that is acceptable for consumers and businesses. This includes the use of biometrics which is the scanning and measuring of unique physical features such as the thumb print or the eye for identification purposes. Processes like these are still costly to implement so encryption is still seen as the most effective solution.

Digital signatures are regarded as the most acceptable way to establish a common format, much as credit cards are the accepted form for payment today. With PKI now included on most computer software and the legislation now in place, once standards are agreed, digital signatures may be implemented and established cost effectively.

As e-signatures become part of our everyday life, they will have an increasing impact on the way financial services are transacted. These changes are likely to pick up speed over the next two years as the quality and standards for encryption technologies are established.

The IFA needs to start gearing up for these new ways of working and offer customers the choice of conducting their business online. The ability to use totally online services that are e-signature free, or to use a digital signature, gives advisers a competitive edge by providing their customers with access to online services they can trust.

Financial planning advice is based on a trusting relationship between the customer and the adviser. The speed of e-business progress means the IFA must also ensure that this trust extends to the use of new technology.