Ironclad E-Signatures

Credit Union Management magazine’s Web-only “Loan Zone” column runs the fourth Tuesday of the month.

Credit union members want the convenience to bank anywhere, at any time, on any device. As a result of changing consumer preferences toward convenience and ease of use, the traditional way of opening a new account or applying for a loan is changing from manual paper-based to paperless. With more and more transactions happening online or via a mobile device, the need for electronic signatures is the previously missing link to enable straight-through processing. As such, it’s no wonder that analyst firm Forrester Research has said, “By 2020, the majority of e-signature transactions will be launched from mobile devices.”

To ensure security in addition to convenience, credit unions need an e-signature solution built on digital signature technology. An electronic signature alone, just like its wet ink counterpart, is a legal concept. Regardless of whether the signature is scripted and captured on a signature tablet or a click-to-sign button, its purpose is to capture the intent and consent of a signer to agree with and adhere to the terms and conditions in a contract.

The term digital signature refers to the encryption technology used to secure data and verify the authenticity of a signed record. An e-signature solution that incorporates digital signature technology and embeds the signature audit trail information directly into the e-signed document creates a tamper-evident document and helps ensure non-repudiation. (It prevents someone from being able to say, “That’s not me who signed that document.”)

But that’s not all a credit union needs to consider when it comes to the security of electronic signatures. To make sure its e-signatures are ironclad, credit unions need:

1. Identification, authentication and attribution: The e-signature laws do not say much when it comes to security techniques and technology, but the legal definition of an e-signature always includes language around signer identity. This means organizations need to take steps to identify and/or authenticate users prior to e-signing, as well as to prove through authentication who actually clicked to apply the e-signature to the e-signed record.
    
2. Document and signature security: The digital signature creates a “fingerprint” of the document that can be used at a later point to verify the integrity of the electronic record. With that, time stamps and audit trails should be embedded directly within the document and linked to each signature. Finally, intuitive, one-click signatures and document verification is essential. If the verification process is too cumbersome, users may wrongly assume that the document and signatures are valid, without proper verification.
    
3. Cloud security: E-signature solutions are available both on-premises and on the cloud. While an on-premise physical deployment offers maximum control, a growing number of credit unions are opting for cloud e-signatures. This requires due diligence on the part of the credit union around security practices and infrastructure.

These security requirements should be readily available in any e-signature solution, regardless of whether the credit union will deploy the solution across the organization or only in one business process or line of business at a time.

CUs Start Small to Go Big

In addition to security at all levels, an e-signature solution should provide flexibility. For credit unions that are not ready to flip the switch completely on e-signing, pilot implementations for one process, such as loans, are common.

Many credit unions struggle with limited IT resources and many competing projects. For them, the option to start with a solution that requires no integration is key. In this case, a credit union may use stand-alone e-signatures through a cloud service. This allows the electronic process to continue without having to go back to paper for printing, scanning, emailing or uploading.  

Credit unions often choose to start with the one process – mortgage renewals or delivery of disclosures – and then expand the solution to other processes. Asking members to come into a branch every time a signature is needed can create a real inconvenience and is also inefficient. E-signatures remove those obstacles. By implementing e-signatures, credit unions can enhance customer service, improve operational efficiency and accuracy, and increase loan revenue, particularly now that the Federal Housing Administration accepts electronic signatures on documents required with FHA-backed mortgage loans for single family housing.  

$302 million North Peace Savings and Credit Union, a community CU serving 11,500 members in Fort St. John, British Columbia, is following a phased implementation plan, first with e-signatures for retail and commercial lending applications and then expanding to account openings using a click-to-sign method. With an average of 100 loan applications a month, the credit union expects to save both time and costs, while offering its members improved service, including the ability to electronically sign using an iPad.

“Member experience is a strong driver for many financial organizations that choose to implement electronic signatures. We're adding convenience and speed for members while eliminating inefficiencies like printing, tagging, scanning and shredding—it’s a win-win for everyone,” says North Peace Savings and CU CEO Mitchel Chilcott, CCE, a CUES member.

$1 billion Sharonview Federal Credit Union, with 65,000 members in Fort Mill, S.C., is also starting small to go big. “We believe ‘online’ is the direction the market is going,” says Sharonview FCU Chief Information Officer Mark Johnson. “E-signatures make sense for us not only from a competitive standpoint, but also to help us meet compliance requirements like the 48-hour window to deliver mortgage disclosures. For that reason, we’ll be investing additionally to automate mortgage and other processes, including member applications.”

$306 million Teachers Credit Union, Hamilton, Ontario, has implemented an e-signature solution for its 18,000 members with a pilot in the fall of 2012. Creating a “virtual” branch, the signing process for loans can be done through the call center, adding ease of convenience for members looking to complete transactions from home or elsewhere. Now, the credit union has reduced the average time to complete a loan by a week and can disburse funds within hours.     

“Providing the ability for our members, who are disbursed across a wide geographic area, to sign documents from anywhere creates an edge that allows us to compete with larger financial institutions. We are offering a higher level of service which today is important to retaining existing and attracting new members,” says Kathy Clark, VP/sales, service and operations with Teachers CU.

Consumer readiness to e-sign is a clear driver for many credit unions to adopt e-signatures; however, confusion over security, legality and risk sometimes lingers around e-signing on the dotted line. Electronic processes deliver unprecedented visibility into transactions executed across multiple branches and ensure compliance requirements are met. Automated workflow rules associated with e-signatures can result in a process that is much less risky than one run on paper. But security still needs to be addressed. One way CUs can get this technology working for them is by implementing a pilot and then moving forward from there.

Michael Laurie is VP/ product strategy and a co-founder of Silanis Technology. To learn more about trading in paper for paperless signatures, download Silanis’ free e-book, E-Signatures for Credit Unions.