Electronic Check and Digital Bill Applications

Chapter 1: Introduction – The Emergence of Electronic Check and Digital Promissory Note Applications

1.1. The Impact of Digitalization in Business Life

In the 21st century, the fundamental dynamics of commerce are undergoing a radical transformation. Classical ledger records, physical contracts, and paper-based securities are increasingly electronic signatures, digital record systems , and blockchain-based applications . This transformation is not only a technological but also a legal revolution, as the fundamental principles of securities law must be reinterpreted in the digital world.

1.2. Why Electronic Checks and Digital Promissory Notes?

Paper-based checks and promissory notes have been indispensable tools in commercial life for many years. However, these documents:

Vulnerable to counterfeiting,
Carrying the risk of physical loss and damage,
These are tools with high transaction costs.

Electronic checks and digital promissory notes have been developed to provide solutions to these problems.

Electronic check (e-check): The digital equivalent of a paper check, issued with an electronic signature.
Digital promissory note: An electronic version of a bond, bill of exchange, and other negotiable instrument.

These documents offer advantages over traditional methods in terms of speed, security, and transparency.

1.3. Current Situation in Turkish Law

In Türkiye, electronic checks and digital promissory notes are not directly regulated in the Turkish Commercial Code. However:

The Electronic Signature Law No. 5070 considers secure e-signatures equivalent to written signatures.
The Central Registry Institution (MKK) has made the transition to the book-entry system mandatory for capital market instruments.
MASAK regulations ensure that electronic transfers are subject to AML/CFT control.

Therefore, while there is no direct "e-check" regulation in Turkish law, these practices have been facilitated through indirect norms.

1.4. International Perspective

In the US , electronic checks are used in the banking system, as permitted by UCC regulations.
In the EU, the eIDAS Regulation guarantees the validity of electronic documents and signatures.
Asian countries (particularly Singapore and South Korea) are pioneers in blockchain-based digital promissory note applications.

For Türkiye, these developments show that it is crucial not to fall behind in the field of electronic negotiable instruments.

1.5. Aim of the Study

The purpose of this article is to discuss electronic checks and digital promissory notes:

Its legal basis,
Their counterparts in international regulations,
The current situation and shortcomings in Turkish law,
the problems in practice and proposed solutions
in detail.

📌 This will provide a comprehensive assessment of electronic checks and digital promissory notes, considering both existing legal regulations and the need for future reforms

Chapter 2: The Digitalization Process of Negotiable Instruments

To understand electronic checks and digital promissory notes, it is necessary to first the historical development of negotiable instruments and their digitalization process. This is because negotiable instruments have been one of the most important tools forming the foundation of trust in trade for centuries. The digitalization process is completely transforming this traditional structure.

2.1. Historical Development of Traditional Negotiable Instruments

The bill of exchange in medieval Italy: It emerged to allow merchants to make secure payments in different cities.
Bonds and checks in the 19th century: They became widespread with the Industrial Revolution for quick payments and credit transactions.
In Turkey: From the 1850s onwards, negotiable instruments were systematically regulated with the Ottoman Commercial Code, followed by the Turkish Commercial Code of 1926.

📌 This development shows us that negotiable instruments have evolved according to economic needs throughout history, responding to the need for security and speed.

2.2. Problems Before Digitalization

Classic negotiable instruments have a number of structural problems:

Risk of physical loss: Fire, flood, loss, or theft.
Risk of forgery: Signature imitation, alteration of numbers.
Transaction costs: Notary, postage, bank fees.
Slowness: Collection of checks and promissory notes can take days.

These problems have become more visible with the digitalization of commerce, accelerating the shift towards digital solutions.

2.3. The First Steps of Digitalization

Electronic fund transfer (EFT) and SWIFT: Digital messages have replaced paper instructions in banking.
Bookkeeping system: The physical printing of stocks and bonds has been replaced by electronic records (Central Registry Institution system in Turkey).
Electronic signature (e-signature): Law No. 5070 introduced a digital signature system that meets the written form requirement.

📌 These developments are precursors to electronic checks and digital promissory notes.

2.4. Transition to Electronic Checks and Digital Promissory Notes

With the digitalization process, it has become clear that the basic functions of negotiable instruments can also be fulfilled electronically

Proof function: Can be protected with a secure e-signature.
Transaction function: Can be provided via digital transfers.
Trust function: Can be supported by blockchain and distributed ledger technology.

Thus, e-checks, e-promissory notes , and e-invoices have emerged.

2.5. International Examples of Digitalization

USA: Electronic documents are recognized under the Uniform Commercial Code (UCC); e-checks have become widespread in banking.
EU: The eIDAS Regulation guarantees the validity of electronic documents.
Asia: Blockchain-based commercial bill applications are being tested in South Korea, Singapore, and Japan.

It is essential for Türkiye to adapt to these global developments in order to maintain the competitiveness of its trade.

2.6. Current Situation in Turkish Law

There is currently no direct legal regulation in Türkiye regarding electronic checks and digital promissory notes. However:

The Electronic Signature Law No. 5070 has fulfilled the written form requirement in a digital format.
the MKK registration system , capital market instruments have been digitized.
MASAK's regulations, digital transfers are under control.

These fragmented regulations have indirectly formed the legal basis for electronic negotiable instruments.

Chapter 3: Electronic Check (E-Check) – Definition, Legal Basis, Advantages and Disadvantages

3.1. What is an Electronic Check (E-Check)?

An electronic check a digital version of the classic check regulated under the Turkish Commercial Code.

It is prepared electronically instead of on physical paper.
It is signed with a secure electronic signature.
It circulates through banking systems and digital platforms.

📌 E-checks are designed to have all the legal consequences of a paper check. However, this requires a clear definition from the legislator and the establishment of technical standards.

3.2. Legal Basis

Electronic checks are not directly regulated in the Turkish Commercial Code (TTK). However, there are some legal grounds that make their indirect application possible:

Turkish Commercial Code Articles 780 et seq. (Provisions on Checks): Lists the formal requirements and mandatory elements. These elements must be met electronically.
Law No. 5070 on Electronic Signatures: This law stipulates that documents signed with a secure electronic signature fulfill the written form requirement.
Article 199 of the Code of Civil Procedure No. 6100 recognizes the evidentiary value of electronic documents.
The Banking Regulation and Supervision Agency (BDDK) has authorized pilot applications for the issuance of electronic checks through the banking system.
MASAK (Financial Crimes Investigation Board) Circulars: E-check transactions are monitored within the scope of preventing money laundering and reporting suspicious transactions.

3.3. Advantages of E-Check

Speed: Transactions are processed instantly, reducing collection times.
Security: E-signature and encryption technologies make forgery more difficult.
Ease of Tracking: Banks and government institutions can easily monitor transactions.
Cost Advantage: Eliminates paper, printing, postage, and notary fees.
Environmentally friendly: It ensures sustainability by reducing paper usage.
MASAK Audits: Digital traces make it easier to detect money laundering and terrorist financing.

3.4. Disadvantages of E-Checks

Legal Uncertainty: Since there is no explicit regulation in the Turkish Commercial Code, there are hesitations in its application.
Technological Infrastructure Requirement: Can be costly for small businesses.
Cybersecurity Risks: Identity theft, password stealing, or exploitation through cyberattacks.
Changing Habits: It may take time for market participants accustomed to using paper checks to adapt.
Issues in Enforcement and Bankruptcy Law: It is unclear how e-checks will be used in the seizure and enforcement procedures specific to negotiable instruments.

3.5. Application Examples

BKM (Interbank Card Center): Conducted infrastructure tests for e-checks in Turkey.
USA: E-checks are widely used in banking transactions and are considered legally valid.
EU: The eIDAS Regulation has ensured the validity of electronic signatures and developed e-check projects.

Chapter 4: Digital Bill Applications

Electronic checks, along with digital promissory notes , are modern tools that meet the needs of commercial life in terms of speed, security, and cost. The transfer of classic negotiable instruments such as promissory notes, bills of exchange, and share certificates to electronic format has brought about new debates in terms of legal systems. This section will examine the legal nature of digital promissory notes, examples of their application, and their advantages and disadvantages in detail.

4.1. Electronic Bond (E-Bond)

Definition:
A promissory note is a negotiable instrument in which the issuer undertakes to pay a specific sum of money. When issued electronically, it is called an "e-promissory note".

Legal Basis:

Articles 776 et seq. of the Turkish Commercial Code determine the formal requirements for promissory notes.
Thanks to the Electronic Signature Law No. 5070, e-invoices signed with a secure electronic signature also meet the written form requirement.

Advantages:

The risk of paper loss and counterfeiting is eliminated.
The collection and payment process is accelerated.
It can be integrated into the banking system.

Problems:

There is no direct provision for e-invoices in the Turkish Commercial Code.
The submission of an electronic promissory note in debt collection proceedings is controversial.
Infrastructure costs are high for small businesses.

4.2. Electronic Policy (E-Policy)

Definition:
A bill of exchange contains an order from the drawer to pay a specific sum to the drawee. When issued electronically, it becomes an "e-bill of exchange".

Legal Basis:

Articles 671 et seq. of the Turkish Commercial Code list the mandatory elements relating to a bill of exchange.
An insurance policy issued with an electronic signature is equivalent to a written policy.

Advantages:

It speeds up international trade.
Security is maximized in blockchain-based applications.
Digital sales are possible.

Problems:

There is a lack of clear regulation on how electronic endorsements should be made.
It requires interbank integration.

4.3. Electronic Shares

Registration System:

In Turkey, the Central Registry Institution (MKK) .
Physical shares have been replaced by electronic records.

Advantages:

Share transfers are conducted electronically.
The risk of loss, theft, or counterfeiting is eliminated.
Corporate governance transparency increases.

International Example:

In the US, the Depository Trust & Clearing Corporation (DTCC) operates a similar centralized registry system.

4.4. General Advantages and Disadvantages

Advantages:

Processes speed up.
The risk of fraud is reduced.
It is an environmentally friendly practice.
MASAK audits become easier.

Disadvantages:

Legal uncertainties persist.
The procedure for electronic endorsement and transfer is unclear.
There is a risk of cyberattacks and data insecurity.

Chapter 5: International Practices

Electronic checks and digital promissory notes are a rapidly developing field not only in Türkiye but also worldwide. These applications are critically important for accelerating global trade, increasing the security of financial transactions, and preventing fraud. Different legal systems have introduced various regulations on this matter.

5.1. United States of America

Legal Framework:

The Uniform Commercial Code (UCC) recognizes that commercial documents can also be valid electronically.
The Check Clearing for the 21st Century Act (Check 21 Act, 2004) allowed the use of digital copies of paper checks in banking transactions.

APPLICATION:

The use of electronic checks is widespread among banks.
The use of digital promissory notes as a financing tool has increased.
The US, particularly fintech companies, is leading the way in blockchain-based digital bond and bill applications.

5.2. European Union

Legal Framework:

eIDAS Regulation (2014): Ensures the validity of electronic signatures, seals and documents throughout the EU.
MiCA Regulation (2023): Enabled crypto assets to be subject to financial regulation. Indirectly created a regulatory framework that could also encompass digital securities.

APPLICATION:

Pilot projects for digital bonds have been launched in Germany, France, and the Netherlands.
In the EU, electronic stock transactions are managed through a book-entry system at centers similar to the Central Securities Depository (MKK).

5.3. United Kingdom

Legal Framework:

Electronic Communications Act (2000): Regulates that electronic documents are legally valid.
In 2022, the UK Treasury began testing blockchain-based projects for digital bonds and electronic checks.

APPLICATION:

Law Commission reports have indicated that electronic documents can function as negotiable instruments, particularly with regard to promissory notes.

5.4. Asian Countries

Singapore:

Blockchain-based commercial bill applications are becoming widespread.
The Monetary Authority of Singapore supports digital bond projects.

South Korea:

Interbank electronic bond and bill of exchange applications are being tested.
Digital promissory notes have begun to be used as a financing tool.

Japan:

Electronic bill systems have been in use for a long time, with payments being made between companies using digital checks.

5.5. The Approach of International Organizations

UNCITRAL (UN Commission on the Law of International Trade): Has published Model Laws that pave the way for electronic commerce.
FATF (Financial Action Task Force): Emphasizes the need for oversight of digital financial instruments to mitigate money laundering risks.

6. Conclusion

Electronic checks and digital promissory notes are an inevitable consequence of the digitalization of trade and financial systems. They largely fulfill the historical functions of traditional negotiable instruments (proof, circulation, security, credit), and in some aspects even offer a higher level of security and speed.

9.1. General Assessment from the Perspective of Turkish Law

In Turkey the Electronic Signature Law No. 5070has established an important foundation for the validity of electronic documents.
the Central Registry Institution, capital market instruments have already transitioned to a book-entry system.
However, there are no explicit regulations regarding electronic versions of classic negotiable instruments such as checks, promissory notes, and bills of exchange

Therefore, although e-checks and e-bills are legally enforceable, there are uncertainties in practice and hesitations in enforcement and bankruptcy processes.

9.2. International Trends

The US, EU, and Asian countries have introduced electronic checks and digital promissory notes or launched pilot projects.
Blockchain and distributed ledger technology enhance the security of these tools.
In international law, digital negotiable instruments are increasingly recognized as a separate category.

9.3. Problems in Implementation

Lack of legal infrastructure,
Electronic turnover and the uncertainty of transfer,
High adaptation costs for small businesses,
Cybersecurity risks.

9.4. Proposed Solutions

A new section titled " Digital Negotiable Instruments " should be added to the Turkish Commercial Code
The Banking Regulation and Supervision Agency (BDDK) and the Capital Markets Board (SPK) standards and support pilot projects.
MASAK regulations should be improved to increase the traceability of electronic transfers.
The Supreme Court and the Council of State should produce precedent-setting decisions regarding electronic promissory notes.
Blockchain integration can maximize legal security for electronic securities.

9.5. Overall Conclusion

Electronic checks and digital promissory notes are poised to replace traditional negotiable instruments. However, this process requires not only a technological but also a legal transformation. The establishment of clear and unambiguous rules within the Turkish legal system, consistent with international regulations, is critically important for the digitalization of commerce.

📌 In conclusion, electronic checks and digital promissory notes will determine the future of commerce; they will create a new system of negotiable instruments based on speed, security, and transparency

#ElectronicCheck #DigitalBillOfPromissoryNote #TurkishLaw #FinTech #ElectronicSignature #NegotiableInstruments #Blockchain #CommercialLaw #MASAK #EIDAS

Law Articles