First Virtual's President Resigns; AT&T Exec Takes Marketing Post

The No. 2 executive of First Virtual Holdings Inc., one of the more prominent promoters of an Internet payment system, has resigned after less than a year in the job.

Michael D. Schauer, president of financial services, left for personal reasons on June 4, the San Diego-based company said Friday.

His arrival last September from a unit of GE Capital Services was seen as a shot in the arm for First Virtual, a three-year-old company hoping to secure a payment-processing niche in on-line commerce.

Outside observers did not view the departure as a sign of trouble. Though Mr. Schauer was not directly replaced, First Virtual has brought in Keith Kendrick, a highly regarded executive from AT&T Universal Card Services, as vice president of marketing.

But the shake-up comes at a time of uncertainty in the Internet commerce field.

First Virtual's stock-it went public in December-has traded inactively in the $6 to $7 range. Internet banking and payment companies like Security First Network Bank and Cybercash Inc., which share First Virtual's ambitions to promote credit card payments on the World Wide Web, have suffered on the stock market.

Nets Inc., which ran the Industry.net virtual business-to-business marketplace led and financed by former Lotus Development Corp. chairman Jim Manzi, recently filed for bankruptcy protection.

First Virtual's primary problem, analysts said, is slow acceptance of VirtualPINs, surrogates for account numbers that help ensure security in the on-line payment system.

"If they don't get a critical mass soon, they'll be marginalized," said Craig Sultan, an analyst at Unterberg Harris, who recently downgraded his rating of the company. "The banks have been slow to fully sign up and agree to market this."

Lee H. Stein, chairman and chief executive officer of First Virtual, dismissed such concerns. "Everything is moving along very nicely," he said.

He would not comment on Mr. Schauer's departure. He said Mr. Kendrick "is card savvy as well as smart card and electronic savvy, so we're pretty comfortable."

As senior vice president at AT&T's card unit, Mr. Kendrick was a board member of Mondex U.S.A.-AT&T is a 10% owner of the smart card franchise-and active in its development of an Internet payments trial.

Mr. Schauer, 35, could not be reached for comment. An avid hunter, fisherman, and golfer, he intended to return to his Wyoming hometown and work as an independent consultant, First Virtual officials said.

"His Rolodex was very good with all the banks, as well as with the processors," said John M. Stachowiak, First Virtual's Chief Financial Officer. He said Mr. Kendrick "will pick up all those responsibilities" and is spearheading a marketing campaign that will "kick into high gear this coming week."

At the end of March, First Virtual reported it had signed 3,300 merchants and assigned VirtualPINs to 215,000 buyers.

The company also had support from two of its investors: First Data Corp. bought 350,000 VirtualPINs to distribute to member banks, and First USA Paymentech bought 200 to distribute to merchants, Mr. Stachowiak said.

Though First Virtual has embraced the MasterCard-Visa Secure Electronic Transactions protocol for on-line card payments, some observers said SET makes First Virtual's approach obsolete.

"It's pretty clear the original opportunity of securing credit card numbers is past its prime," said Bill Burnham, an electronic commerce analyst at Piper Jaffray Inc. in Minneapolis. He said First Virtual and Cybercash were "trying to move a mountain" by redesigning the payment system.

With an investment group that also includes GE Capital, First Virtual remains "in fairly good shape," said Nicole Vanderbilt, an analyst at Jupiter Communications in New York. But she said it needs to transform itself from a payments company to an on-line advertising specialist.

First Virtual has been promoting VirtualTags, which enable purchases directly from an on-screen advertisement. "The VirtualTag is unique to the market and should be their core differentiator," Ms. Vanderbilt said.

First Virtual said last week that AT&T Worldnet, the telecommunications company's Internet service, was the latest to adopt the VirtualTag system to ease on-line information exchanges and consumer purchases.

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