First Union Corp. and Wells Fargo & Co. have become the first U.S. banking companies to join an international bank group planning a global Internet-based automated clearing house system.

The Worldwide Automated Transaction Clearing House, known as Watch, began forming a year ago to promote cross-border ACH payments. Eighteen banks from 11 foreign countries are members,

The aim is to overcome the differences in country-based rules that now impede the clearing of payments across national borders.

Watch completed the second phase of its creation last week when it was incorporated as a limited liability company in the United Kingdom. First Union and Wells were among the incorporators and have seats on the board of directors. The group is now selecting a vendor to build its system in the second half of 2002.

Wells and First Union say their participation in Watch should help them serve U.S. corporations that buy and sell goods overseas or that have workers in other countries.

"It will give our corporate customers a low-cost, efficient way to do cross-border ACH payments to individuals in their local currencies," said Mark Havlik, vice president and manager of global electronic payments for First Union.

Wells, which already sends some ACH payments across the Canadian border, "wanted to take a leadership role in finding a solution for cost-effective, global payments," said Mary Trigg, the head of corporate communications for Wells' wholesale groups. "We saw this group as a good vehicle for creating that solution."

Priscilla Taylor, Watch's general secretary, said she anticipates that Watch member banks would reduce their cross-border transaction costs by 40% to 50%.

"Today, the options companies have are very limited and expensive," Mr. Havlik said. "Watch is an intelligent switch, an international traffic cop."

Watch has substantial hurdles to overcome, said George Thomas, senior vice president of the New York Clearing House Association. He cited substantial differences among local ACH systems in governance, operating rules, settlement procedures, risk management procedures, and communications protocols.

"If countries could come up with a unified standard, such as using the Euro as currency for small dollar payments, it would be much easier to implement than to try and deal with different legal jurisdictions and currencies," Mr. Thomas said.

Ms. Taylor said those concerns are challenges that can be overcome.

"Politics is always the biggest issue," she said. "It's not necessarily a problem, but a challenge."

Watch is asking other U.S. banks to become part-owners of the company by paying a $100,000 fee. Membership is open to all regulated deposit-taking institutions.

Watch began forming in August 1999. Forty-eight banks, including 14 in the U.S., participated in the exploratory phase, to define governance of the organization and establish business specifications for the system.

The not-for-profit, bank-owned entity has a governing structure similar to that of the Society for Worldwide Interbank Financial Telecommunication, the Belgium-based bank messaging network known as Swift.

"We are very happy to have Wells and First Union as part of Watch and on its board of directors," Ms. Taylor said. "We hope to have more U.S. banks join the company."

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