Bankers and their credit card customers do not have to wait for the outcome of a recently announced Visa-Microsoft alliance to make secure payments over interactive electronic networks like the Internet.
So say a growing number of technology companies that believe they are able -- or soon will be able -- to do what Visa International and Microsoft Corp. are promising for next year.
"It's here, it's live, it's running today," said Gail L. Grant of Open Market Inc., a leader in the race to offer systems for what it calls "end-to-end electronic commerce,'
Open Market and similar aspirants -- many of them young, entrepreneurial startups -- lack the global, mass-market reach of a Visa or Microsoft. But their rapid technological and marketing advances typify the accelerating pace of change on the information superhighway.
They also point up the need for banking and payment systems to get up to speed before more nimble competitors pass them by.
Some major banks are doing just that. Almost all of the top 20 have addresses on the Internet, the burgeoning, interconnected web of computer networks that began with government sponsorship but is becoming increasingly business-oriented.
According to Internet Info of Falls Church, Va. which compiles data on network usage, Citicorp has at least four addresses, BankAmerica Corp. five, and Fidelity Investments, one of their more feared competitors, has 15.
The Internet -- and potential connections through computer-network services like America Online, Compuserve, Prodigy, and the forthcoming Microsoft Network -- is shaping up as a utility for both consumer and business payments and related information.
But these systems were built for open and easy access and therefore need standardization and security to handle electronic commerce. Trying to fill this void is CommerceNet, a consortium of more than 50 companies -- including Citicorp and BankAmerica Corp. and Banc One Corp. -- exploring ways to do business over the Internet.
They believe the stakes are high: Killen & Associates of Palo Alto, Calif., estimates that $600 billion of goods and services will be purchased via the Internet in 2000. It projects that in 2005, $50 billion will be spent on Internet transaction processing alone.
CommerceNet, based in Menlo Park, Calif., was launched only last April, but its powerful corporate backing makes it "the establishment" where electronic commerce is concerned. It says it is within weeks of providing the security capability that will allow for payments to be executed on-line, in much the way that banks' electronic funds transfer systems operate.
Meanwhile, smaller organizations like Open Market, which opened in April in Cambridge, Mass., are saying they can accommodate payments in "virtual malls" for purchasing goods and services electronically.
Included in this group of relative upstarts are First Virtual Holdings, based in the San Diego area; CyberCash Inc. in Vienna, Va.; and Digicash Inc. in Menlo Park, Calif.
Most aim to ensure security, privacy, and confidentiality through data encryption and authentication techniques, but there are variations in their electronic-commerce themes.
In the interest of moving transactions and payments on day one, First Virtual chose to bypass the Internet encryption question. The month-old enterprise relies on an Electronic Data Systems Corp. network to link buyers and sellers, and on the merchant processing unit of Dallas-based First USA Inc. for credit card clearing.
"Our system was designed to permit encryption technology -- once a worldwide standard develops and it is widely available," said. Lee Stein, president of First Virtual.
Others went ahead and implemented security measures within the Internet.
"We are real-time, with authentication and settlement in-band," said Ms. Grant of Open Market. "We could implement CyberCash on our system," she added, because it fills the bill of a true electronic currency.
By contrast, "First Virtual uses E-mail, it is not in-band," said Ms. Grant, who is based in Palo Alto, Calif., as vice president of business development for Open Market. In other words, the First Virtual payment has to be completed parallel to the Internet, not within it as CommerceNet, Visa, Microsoft, and others aspire to be.
Open Market recently announced Store Builder, a software package that allows any type of merchant to hawk its wares on the Internet's World Wide Web. The company has been fielding inquiries from banks of all sizes, and has worked closely with MasterCard International, Ms. Grant said.
"The rules for success in the electronic marketplace are very different than in traditional commerce," said Shikhar Ghosh, cofounder and chief executive officer of Open Market. Formerly CEO of Appex Corp., which developed an intercompany payment system for roaming across the cellular phone network, he hooked up with MIT professor David Gifford and Digital Equipment Corp. technology expert Lawrence Stewart to build security for Internet communications.
In October, Mr. Ghosh said his company had "the first total infrastructure" for creating products, attracting customers, accepting payments, and providing other support to sellers on the "on-line frontier."
Open Market says a merchant, following simple computer commands, can open a store on its Internet Merchant Server for less than $1,500, not including monthly fees based on store size and transaction volume.
In contrast to the way First Virtual built a payment system around its initial application of selling electronic documents, Open Market connects its Merchant Server to a Payment Server. Payment data are secured with personal identification numbers, passwords, data encryption, and, for large-dollar payments, a smart-card-generated security code.
The system is initially limited to credit card transactions, processed through Litle & Co. Open Market plans to add debit cards, corporate accounts, digital cash, and automated clearing house options.
Given the prospects for on-line payments, and with no end in sight to Internet growth -- it has 20 to 30 million users, the number of "host sites" has tripled in two years, and there are more "commercial domains" than any other category -- "a real concern needs to be voiced" about security, Ms. Grant said.
"Payments are not the only issue," she said. "There are challenges to the entire infrastructure surrounding the payment, in areas such as customer service, system performance, and fraud protection."
"The fact that so many people are going into business [on the Internet] shows how hot this area is," Ms. Grant added.
"Things are happening so fast that there is no way to keep up with it all," said William M. Randle, senior vice president of Huntington Bancshares Inc., in Columbus, Ohio, who is crusading to preserve a central role for banks in guiding customers onto the information highway.
"The effect on the banking industry is total confusion," Mr. Randle said. "But there are people, like Microsoft and Visa, who understand that they have to do something. If they wait for a clear path to emerge, it will be too late."
Working together, Microsoft and Visa may have a lot to say about bringing order- and security of payments -- to the chaos, though Mr. Stein is typical of the upstarts when he says, "I don't think the rest of the world will allow Visa and Microsoft to dictate the system."
The No. 1 card association and the software giant said Nov. 8 that they had signed a letter of intent to develop a "secure solution" for electronic processing of bank card transactions across global public and private networks.
Visa's global leadership, combined with the Microsoft Windows software's 60 million users, raised concerns about their "enforcement" power. But the companies said they will "publish specifications that make secure transaction technology available to other software vendors and card systems to implement themselves or license from Microsoft."
In a sign that no one hogs the information highway, the credit card processor First Data Corp. weighed in last Friday with an alternative for electronic commerce that is supposed to be ready next month.
First Data's electronic funds services unit announced an alliance with Netscape Communications Corp. of Mountain View, Calif., saying they will provide "the first real-time on-line card authorizations."
At least in the Internet context, this combination could be Visa's and Microsoft's match.
Netscape, formerly called Mosaic, provides a popular computer program that simplifies navigation of the Internet. First Data, the No. 1 bank card processor and soon to be one of the biggest merchant processors through the acquisition of Card Establishment Services Inc., will arrange for acceptance of American Express, Discover, MasterCard, and Visa cards, fully electronically.
Like Visa and Microsoft, First Data and Netscape emphasized security -- both alliances will be using encryption technology of RSA Data Security Inc. -- and low barriers to entry. For $5,000, Netscape offers a Commerce Server for secure on-line transactions and data interchange.
First Data has already identified three customers: First Interstate Bank of California, which is also active in CommerceNet; Norwest Corp.'s Norwest Card Services unit; and Old Kent Bank and Trust Co. of Grand Rapids, Mich.
"It is vital that payment services evolve along with technology," said Randy Kahn, senior vice president of First Interstate.
"This service provides a secure, easy to use payment facility for the evolving information superhighway -- an important step in the evolution of electronic commerce."
Mr. Randle of Huntington Bancshares said he doesn't always agree with the strategies of Visa or First Data, but they are forces to be reckoned with.
He is concerned that they are too focused on enabling credit card payments; he believes the strategy should be built around the entire bank and its customer relationships, broadly defined.
