Electronic Contract Conclusion Methods – Part One
In connection with modern technologies evolution, foremost the Internet and mobile devices, new sale and services conclusion channels are arising. Yet, this enterprise is facing a number of issues. The regular hard copy contract signing does not quite fit with latest ‘electronic processes‘.
Therefore a number of companies are looking for alternative ways of signing their paperwork, hence new ways of concluding contracts with their clients.
This article is a short contemplation of the various possible ways from two key perspectives. I have denominated these Ease of Use and Credibility as axes of the magic quadrant that makes up the list of the main contract conclusion methods.
It should be emphasized that the following facts and ideas are closely tied with the Czech (Internet, financial and legal) environment.
Here we go:
Location of each method in the diagram should not be considered too dogmatically, we could also draw quite a different magic quadrant that would do the same job.
This is given by the following facts:
- The significance of the diagram axes is rather vague, elusive. What is easy for one person is difficult for another one and vice versa. The term credibility is particularly vague. Everyone can connote it with something slightly different or consider some of the features less significant than the others. I shall explain my point of view below, yet, there will still be plenty of space for various interpretations and subjective perception.
- Any given method can entail something else for everyone. The reason is that each method can be implemented in many ways, differing in many details, yet such details may have a significant influence on the observed characteristics and therefore shift the implemented method in one or the other axis in either direction.
The purpose of the diagram is not to strictly compartmentalize, but rather serve as a fair base for contemplation, discussion and comparison across the methods.
Below I shall explain in detail what properties are of our interest.
Ease of Use
Let us start with the simpler term Use Readiness. For your grandmother might be easier to go twice to the post office, even if she cannot walk that well anymore, her bus goes only twice a day and this activity keeps her busy for half a day. She is likely to opt for this solution rather than dealing with something online on a computer she does not have. Yet, we are concerned with ‘the new channels’ as I stated in the introduction. Therefore, let's look at our case with the benefit of remoteness, as the more we can do remotely, without having to go anywhere, the better we are off. Our premises are the following:
- Every client that is of our concern has a computer and a mobile phone.
- Yet not everyone has a fax or a scanner.
- A post office is in majority of cases closer for the greater part of the population than a company branch (not everyone lives in a capital city where we might as well go to the branch).
Here I am quite puzzled over what word to choose. This criterion in itself encompasses many different things. Some of them would be subsumed under the label of ‘security’, although it is also pretty vague. What I mean is technological security - covering the risks associated with contracting in both terms of the client and the organization. Anyway here is one of the many glitches as increasing the safety of one side sometimes reduces the security of the other. Another issue is of a purely psychological stance – how such a method is seen by society. This is often not related to the objective parameters of safety. Nevertheless, it is related to another issue included in the criteria of credibility, which I would denominate as formal legal certainty. The psychological stance and legal certainty influence each other. The public has more or less confidence in any methods used depending on their embedding in legal regulations, attitude of courts, existence of precedents, and overall extent of the method application use duration. This works also the other way around. Legal regulations generally catch up with technologies; and judges and lawyers are people too. When there is neither clear law nor centuries of experience with the method use, they have to use their own reason when deciding. The question is to what extent they can objectively and correctly assess the nature of such matters, if they do not understand them, due to their complex technological nature, and to what extent they are influenced by "a sense of credibility" and their trying to "play it safe" by sticking to the established.
Contract Conclusion Methods
A brief explanation of particular methods so that we clarify what the individual circles in the diagram signify.
Signature at the Branch
This is a classic time-tested method. The principle of signing a hard copy needless to explain, but it is important that as part of this method we understand the agent’s participation in the signing process. Such an agent is relatively well capable of verifying an identity of a person (matching the personal documents and photographs with the reality) and above all, s/he is able to confirm that the relevant person has actually signed the document.
Hard Copy Signature remotely with ID Verification
Probably the most widely used process to conclude a service online (or remotely without having to visit a branch), while adhering to the usual paperwork and signatures. Usually performed through a contract and other materials delivery by a courier to the client, who both verifies the client’s ID (and possibly makes a copy) and ensures the delivery of the client signed documents (a copy of the ID) back to the organization.
Hard Copy Signature without ID Verification
The documents can be signed at home and send in post. Yet, there is no witness of the signature, who could confirm there was an ID that appeared genuine, neither there is a witness who can confirm the person who signed the document resembled the photograph in the ID..
Copy of Hard Copy Signature
The signed document can be faxed or scanned and sent electronically. The other party does not possess the original copy with the autograph.
Electronic Signature Based on Qualified Certificate
Well known electronic signature recognized by EU directive 1999/93/EC.
Biometric Electronic Signature
By biometric signature I mean electronically captured (recorded) hand-written signature, either with the means of a specialised device or with the means of a tablet with relevant sensors. See more about such signatures at http://www.web-integration.info/cs/blog/nastrahy-a-vyzvy-elektronickeho-podpisu/
Electronic Signature without Biometrics with ID Verification
This designation simply means signing an electronic document (recording a hand-written signature) on a tablet or a smartphone without the support of biometrics. Primarily agents 'in the field' would use this method; it could also be used by various business representatives, etc., who do not have special devices.
Electronic Signature at Home
A common client at home does not have a sign pad, but tablets and smart phones are already quite widespread and therefore can theoretically be used to record a hand-written signature in self-service online contract conclusion. Most of them, however, do not currently support biometrics. Again, this method lacks the participation of another person and verification of the identity of the signer during the act of signing.
Transfer from Personal Bank Account
This method is used, for example, with certain micro-loans, or when concluding an insurance premium (the possibility of concluding an insurance premium through a direct payment is explicitly stated in the Insurance Contract Act). Some banks offer this method when opening an account. The account holder can be verified, and the payment can be accompanied by information about the purpose, or any other information that will help prove informed consent of the client. Actually, this is a shift of the issue of verifying the identity of the Parties to the banks, carrying out it when establishing the accounts.
Consent Online/On the Phone without Authentication
The easiest but the least secure method how to conclude any contract is to click on a website „Yes, I agree.” or say the same on the phone to a call centre agent.
Yet it is necessary to highlight that we have not considered here a situation in which a client gets a loan through his/her internet banking, i.e. concluded a loan online. Neither have we considered a scenario in which such an act is carried out from a registered mobile phone number and the client’s second and fifth letter/digit of his/her password is passed. It is necessary to take into account that such processes are based on a primary (framework) agreement, which was regularly signed and the client’s identification was verified prior to accessing the secured internet banking or the call centre.
Here, by contrast, is a situation where, in principle, an unknown person remotely expresses consent with the agreement, yet at the moment it is not possible to credibly verify / prove that s/he is the one s/he claims to be.
In the first part of the article we have briefly introduced the particular methods and the magic quadrant, which compares the methods following the two criteria. Should you like to learn more about the specific design of the quadrant you can do so here.