The NetCheque system was developed by a team led by ISI computer scientist Clifford Neuman. It combines existing computer security technology initially developed at the Massachusetts Institute of Technology with distributed authorization and accounting technology developed at ISI to represent and process electronic financial instruments similar to checks, which can be used to pay for goods and services over the Internet.
"We believe that NetCheque will be significantly more
secure than existing methods for both buyer and seller," said Neuman, noting that such methods typically involve transmitting potentially compromising information such as credit card numbers on lines vulnerable to interception.
NetCheque will work in much the same way as a conventional paper check, Neuman said. An account holder will issue an electronic document that contains the name of the payer, the name of the financial institution, the payer's account number, the name of the payee and the amount of the check. Most of the information is in uncoded form.
Like a paper check, a NetCheque will bear the electronic equivalent of a signature: a code group which authenticates the check as coming from the owner of the account. And, again like a paper check, a NetCheque will need to be endorsed by the payee, using another electronic signature, before the check can be paid.
Finally, through NetCheque, properly signed and endorsed checks can be electronically exchanged between financial institutions through electronic clearing houses, with the institutions using these endorsed checks as tender to settle accounts.
Neuman reviewed the requirements an electronic checking system must satisfy to be useful:
The NetCheque system that will be rolled out in tests meets these requirements, Neuman believes.
The system is based on the Kerberos security software system - developed by Neuman and others at MIT - which is now widely used to protect network computing services from break-ins and theft of services.
Named after the three-headed watchdog of Greek mythology, Kerberos is designed to allow access without passwords or other compromising information being sent over network links. In a series of coded back-and-forth messages between two corresponding computers, Kerberos creates a coded data packet called a "ticket" that can be presented to a third computer to securely identify the user.
A NetCheque is, essentially, a specialized kind of "ticket" created by the Kerberos system. A user's digital "signature" is used to create one ticket - a check - which the payee's digital "endorsement" transforms into another - an order to a bank computer for fund transfer.
Subsequent endorsers add successive layers of information onto the tickets, precisely as a large number of banks may wind up stamping the back of a check along its journey through the system.
A further refinement of the system now in the early stages of development uses NetCheque to support electronic currency that can be spent as anonymously as the prepaid electronic phone cards now marketed in many foreign countries. This system, called NetCash, should be ready for release in six to nine months.
The NetCash system will allow for the creation of independent currency servers that will, in effect, create their own electronic money backed by fund transfers effected through the NetCheque system, according to Gennady ("Ari") Medvinsky, a graduate student working on the project, and will support the exchange of electronic cash from differing systems.
The NetCheque software has been integrated with an existing software system called Prospero, also created by Neuman, which provides for searching and retrieval of information on the Internet. With the next release of Prospero, scheduled for later this year, Mosaic users will be able to use the Prospero protocol to pay for services on-line with NetCheques. "Prospero was designed from the start with hooks for security and accounting," said Neuman, "and NetCheque plugs right in."
For maintainers of information resources, Prospero provides a way to manage access. In contrast to the other information discovery and retrieval protocols that underlie Mosaic, Prospero provides for remote file update and per-user access control. Prospero, first released in 1990, is presently used by America Online as part of their gateway for access to Internet information services.
The initial roll-out will include software for writing and depositing checks independent of other applications, and a programming interface that will allow the same functions to be called automatically when integrated with other programs. A number of net-user businesses have expressed interest in using the software.
Simultaneous with the roll-out, USC will make available "accounting server" software. This will allow organizations to, in effect, set up their own in-house, on-line "banks," which would accept paper checks or credit card payments in exchange for crediting a customer's NetCheque account.
Such accounting servers will enable large organizations to pay bills and settle accounts with NetCheques written with their own banks, in effect integrating their own internal accounting system with the external financial hierarchy.
The servers will also allow such organizations to set up accounts for customers to purchase services - as they do with department store charge accounts - or even to perform banking tasks, like writing cashier's checks or making electronic fund transfers for fees - if regulatory issues can be resolved.
ISI will set up an experimental accounting server that will open an account to anyone on the Internet that requests one. (To request one, send an e-mail message to email@example.com. The balances in USC's accounting server will not represent real money in this test phase.)
ISI intends to make the NetCheque software available free of charge for personal, non-commercial or limited commercial use. For commercial use or integration with commercial products, USC will grant non-exclusive licenses on generous terms, parallel to arrangements now in place for the Prospero software.
Work on the NetCheque and NetCash systems was funded by the Advanced Research Projects Agency through its computer systems technology office.
Clifford Neuman of the Information Sciences Institute heads the NetCheque project, which is developing a counterfeit-proof electronic payment system that can be used to buy goods and services on the information superhighway.