Independent sales organizations may realize such benefits as lower costs and faster sales cycles from using digital signatures and contracts, but they likely will find difficulty adopting a technology not widely used in the payments industry. Potential legal difficulties also exist, and not all processors and sponsor banks may approve of digital contracts, note observers.
Regardless of the method ISOs use or third party with which they contract for digital contracts and signatures, they should ensure it complies with the federal Electronic Signatures in Global and National Commerce Act, says Stephen A. Aschettino, president and attorney at law at Aschettino Law PC, a New York-based law firm.
Additionally, each state has its own commerce law, and all states but New York, Illinois and Washington have adopted the Uniform Electronic Transactions Act, which governs the validity of electronic signatures and record retention, says Aschettino.
ISOs also should review carefully the service agreement they enter into with third-party providers of electronic-document services. “They will have a number of disclaimers, and you have to look at what they will indemnify you for,” says Aschettino. “You have to be careful what you are bargaining for and who you are bargaining with.”
Ultimately, the decision on whether to use electronic contracts for ISOs centers on risk versus reward, says Paul A. Rianda, who operates his own law firm in Irvine, Calif. “I encourage my clients to set a threshold [amount for how much in electronic funds merchants process] if they are going to do electronic means,” says Rianda.
If a merchant is completing $10,000 per month in card transactions, it is not a large risk to the ISO if the contract is unenforceable, he says. An ISO may want to obtain a physical signature or valid electronic signature for a merchant processing $50,000 or more each month, he says, noting not all forms of electronic signatures are valid.
One of the issues surrounding digital documents is how to accurately authenticate the persons “signing” the contract are who they claim to be, says Rianda. “How do you authenticate the person that is on the other end of the computer?” he asks.
Some electronic-document companies provide authentication services that ensure the correct client is approving the contract, says Adam Atlas, a Montreal-based attorney with Adam Atlas Attorney at Law.
Indeed, DocuSign uses phone-based or knowledge-based authentication methods, says Tom Gonser, founder and vice president of product strategy for DocuSign Inc., a Seattle-based provider of electronic-signature services. “These are tools that make sure it’s me and not someone else at my computer,” he says.
For instance, DocuSign can provide clients with access codes they must input to digitally sign the document. “Someone who tried to sign [the contract] would need to know that code,” he says.
With DocuSign’s electronic process, the company sends an e-mail to new clients that informs them the sales agent with which they are doing business would like them to fill out and sign a document digitally, says Gonser. The client clicks on a link in the e-mail and is directed to a Web page that displays a graphic representation of the person’s signature but not an exact replication. The representation serves as a substitute for a physical signature that the client must accept as his or her digital signature, he says. Clients also have the option of uploading a scanned version of their physical signatures.
Once clients accept the digital signature, they can view their contracts on the computer screen, says Gonser. Tags indicate where the client needs to “sign,” and the client can leave a digital signature by clicking on the areas indicated by the tags. Once finished, the client can print a copy of the contract for the company’s records, save it to a company computer or store the contract electronically with DocuSign, he says.
Aschettino theorizes there has not been much uptake among ISOs of digital contract technology because processors and sponsor banks are concerned about it. “I have seen a reluctance of the processors to accept documents like that. They prefer to see hard, signed documents,” he says.
Adoption of the technology will have to “trickle down,” says Aschettino. ISOs may want to use digital contracts, but first the processors and sponsor banks need to approve, he says, recommending that ISOs interested in adopting digital contracts first speak with their processors and banks.
Mike Cottrell, vice president of business development at TriSource Solutions LLC, a Bettendorf, Iowa-based merchant-processing provider and ISO, says the company’s sponsor bank, Merrick Bank Corp., initially was “concerned” with digital documents and signatures. The ISO worked with the Draper, Utah-based bank and its legal group to ensure everyone approved of the process, he says.
Some merchants also may balk at signing documents digitally, says Aschettino. “The problem might be in this industry you have your sophisticated merchants, but the bulk of merchants out there are mom-and-pop companies that don’t want to deal with electronic documents,” he says, noting many businesspeople are more comfortable signing traditional paper documents.
TriSource, however, has encountered little difficulty convincing clients in its merchant base to sign digital contracts, says Cottrell. “Most merchants like it. They find it easy and fast,” he says, noting only a few merchants felt uncomfortable with the process.
Digital contracts and signatures have the potential to speed up the sales process. However, few merchant-service providers have embraced the technology, and adoption among all industry players likely must occur before ISOs widely adopt it.