In the first quarter of 2021, eOriginal® saw a 50% leap in transactions of digital asset-backed securities (ABS). In equipment finance, we handled more digital ABS transactions in Q1 2021 than in all of 2020. An industry that had been hesitant to go electronic is beginning to embrace digital in a big way.
As the economy emerges from the grips of the pandemic, many financial institutions and equipment dealers will continue their digital journey, driven by customer demand. But if organizations want to realize end-to-end digitization, they’ll need to move beyond simple process steps to enable truly digital financial documents. To accomplish that goal, they’ll need an electronic vault, or eVault.
An eVault enables secure, trusted creation and management of the authentic-original digital lease contract. It also supports the securitization and sale of that asset into the secondary market. But to achieve optimal return on their digital investments, organizations need to understand how eVaults work – and how to make them work most effectively.
What’s in the eVault
An eVault is designed to hold eChattel – the digital variant of chattel paper such as an equipment lease. eChattel is governed by a legal framework. Uniform Commercial Code (UCC) Section 9-105 requires that eChattel be created, stored and assigned to meet six stringent Safe Harbor provisions, including ensuring an authoritative copy, assignee identification, secured party modification control and copy identification.
The purpose of the eVault is to reliably establish the person or entity to whom the single, authoritative copy of the eChattel is assigned, issued or transferred. The eVault provides a secure environment that ensures the eChattel remains negotiable and transferable. An effective eVault allows privileged access to the document without compromising the integrity of the original.
Three Steps to eChattel
Here’s how an eVault works:
- Signing – The transaction parties electronically sign the lease contract, either in person by using a digital signing device or remotely by logging in to a secure online portal. It’s also possible to manually sign a contract with “wet” ink signatures and later convert it to eChattel, though that scenario is less common.
- Depositing – For organizations using eOriginal SmartSign®, the eSignatures are applied directly within the eOriginal eVault environment. For those using a third-party eSignature tool, the signed document is immediately eDeposited in the eVault. Both approaches establish the authoritative, original document. The eVault enables the eChattel to be held and managed through controlled access by authorized parties throughout the document’s lifecycle.
- Managing – The eVault controls and logs all activities and functions that affect the original document. That includes any requests to view or print the document, or generate legally admissible copies for use in a court of law. It also covers transferring the authoritative copy to another eVault or permanently exporting it to paper.
Keeping Track Electronically
In addition to UCC 9-105, the Uniform Electronic Transactions Act (UETA) and Electronic Signatures in Global and National Commerce Act (ESIGN) provide a market standard for confirming control over an eRecord such as a digital equipment lease. The goal is to establish control of the single authoritative copy of the document and to demonstrate that the authoritative copy is unique, identifiable and unalterable.
To achieve that goal, the eVault should maintain a time-stamped, tamper-evident audit trail. The audit trail should track crucial events such as who had the authority to create the document, who actually created it, when they created it, whether they had rights at that time, the digital certificate of the person or entity that took those actions, and when the document was transferred from one entity to another. Those evidentiary and control elements are important to maintain in an audit log so that they’re admissible and enforceable in a court of law.
The eVault Advantage
A well-designed eVault solution delivers numerous business benefits. Chief among them are:
Compliance – An eVault promotes strong data security by safely storing and managing digitally verified electronic documents. It also imposes strict processes that ensure the documents remain legally enforceable, admissible and negotiable.
Transparency – An eVault can result in better records management, faster access to the original documents and a clear audit trail throughout the document lifecycle. Full insight into the digital chain of custody protects the interests of all stakeholders.
Lifecycle management – An eVault ensures that eChattel remains negotiable and transferable. As a result, it enables equipment leases to be efficiently pooled and sold as ABS in the capital markets.
Financial institutions, equipment dealers and customers alike are recognizing the advantages of digitizing equipment leasing and finance. Whether organizations are just starting their digital journey or ready for the next phase of their digital transformation, eVault technology can help them optimize processes, deliver better customer experiences and gain competitive advantage in an increasingly digitized marketplace.