Each new entrant in the race for electronic commerce technology tries to distinguish itself from rivals. In the case of Certco, which wants to make a mark in the increasingly crowded field of Internet payments and security, it is the backing of Bankers Trust New York Corp. that sets it apart.

Spun out from Bankers Trust in mid-December and armed with $30 million in venture capital, Certco has melded together a staff of accomplished cryptographers and seasoned bankers. Its mission is to stake out turf in two areas where other firms have already made a name: on-line micropayments and digital certificates.

Executives at the New York-based company are betting that their banking heritage will bring business their way.

"What this company represents is the collision of banking and technology," said Laurence G. Walker, Certco's president and chief executive officer.

"Our competitors are principally technology companies that have decided that working with banks is an interesting vertical application. By contrast, our company has a deep understanding of banking."

The company germinated for two years within a division of Bankers Trust known as BT Ventures, with the idea that it would one day become independent.

The reasoning was that the products Certco developed could be helpful to the bank, but that other banks would not buy them if the company remained part of Bankers Trust. It is a path other banking innovators, notably at Citicorp, have trod before, with at best mixed success. (See facing page.)

"Smaller companies that are going to be successful need to come from the landscape of larger ones, so that they're not just a romanticized garage," said John Herron Jr., senior managing director of BT Ventures.

Bankers Trust holds a minority equity stake - underscoring the spinoff's independence but sufficient to show the outside world Bankers Trust's confidence in Certco and to return a profit if the company does well. Other investors include Marsh & McLennan Risk Capital Holdings, the cryptography pioneer Addison Fischer, and members of the Tisch family, Certco officials said.

Whether banks will care about the structural distinctions remains to be seen. The products Certco plans to introduce this year will go head to head against those that several other companies are promoting aggressively.

Among those with a head start in micropayments - low-value transactions suitable for buying software and documents off the World Wide Web - are Cybercash Inc., Digicash Inc., and First Virtual Holdings. More established companies are also exploring the field, including Mr. Walker's former employer, Digital Equipment Corp. Similar ideas are percolating in academia, such as the NetBill system at Carnegie-Mellon University and PayWord and Micromint, two proposals from Massachusetts Institute of Technology professor Ronald Rivest.

Another group of companies is propagating digital certification, the high-tech means of authenticating the parties involved in an Internet transaction. These providers include Verisign Inc. and GTE Corp., the companies working most closely with Visa and MasterCard on the Secure Electronic Transactions protocol, as well as Northern Telecom.

Many who place faith in digital certificates and their corollary, digital signatures, say banks and insurance companies have the stability and reputations to be "trusted authorities" issuing and managing the certificates. Some bankers say they may eventually earn handsome fees by charging for digital certificates.

"Commerce on public networks is not going to take off without a trust infrastructure," said Mr. Walker, who previously managed the Internet products group at Digital.

Certco's founder, Peter C. Freund, was a derivatives trader at Bankers Trust for eight years. A third of Certco's rapidly growing staff - now around 50 - came from the bank. Others were hired from such places as International Business Machines Corp. and Sandia National Laboratories.

Certco's cryptographers "are people who used to worry about the release mechanisms for nuclear weapons," Mr. Walker said.

They include David Kravitz, who holds a patent on digital signatures, as well as others whose names are well known in crypto circles: Moti Yung, Ernie Brickell, and Alan Acey, a lawyer who helped draft Utah's groundbreaking digital signature law.

Certco says its digital-certificate scheme differs from others because it breaks up the private encryption key - the code that secures the information - into several pieces, to be held in different places for the sake of security.

"In many cases, an organization that wants to issue the certificate would want to spread the risk," said Paul Turner, a Certco product manager. "The private key can be spread among multiple organizations - a bank could actually outsource some of the security."

Moreover, the certificates are meant to be "load-bearing," meaning that the issuer not only vouches for the identity of the parties in an on- line transaction but also assumes liability for the transaction.

"It comes back to this idea of marrying technology and banking," Mr. Walker said.

"If I get a certificate from a technology company, can I be sure that if something goes wrong they're not going to go out of business? If that certificate is from Citibank or Lloyds of London or Hongkong Bank, I'm going to trust it - and I'm going to be willing to pay for that."

In the other market Certco is going after - micropayments - the company claims it will be distinguished both by its low cost to institutions that use it and by the extremely low prices of the purchases for which it is intended.

Many electronic commerce experts believe a large market will develop for small bits of information that can be purchased individually, like news articles, stock quotations, and pictures. Certco's system, named Acquire, is targeted at items under a nickel.

"We're trying to focus on the merchants you find on the Web," Mr. Walker said. "We'd like to get the Wall Street Journal, for example. I get the regular paper every day, so I won't pay $50 a year for access to it on- line. But I might pay 50 cents to read it on a day when I leave my paper at home."

Like its more established rival Cybercash, Certco is seeking to sign up merchants as well as banks for its transaction system. Cybercash has gotten several large banks - including Wells Fargo & Co. and First Union Corp. - to offer its virtual wallet, which includes a Cybercoin purse for micropayments.

Certco's system sounds similar to Cybercash's: A consumer would download cash from a bank account into an on-line wallet and use the money in small increments to pay virtual vendors.

"What's new and profound is how much cheaper the transaction cost is," Mr. Walker said. "The banker, the merchant, and the customer will save money in the long run."

The reason, he said, was that Certco's cryptographers had designed a system that was "heavyweight enough" without being "overkill."

He said "military-grade encryption" - the kind touted by Security First Technologies for its Internet banking system - is not necessary for micropayments. "You can't make anything absolutely secure - that's impossible," Mr. Walker said. "But you can make it economically unsound to try to break it."

Victor Wheatman, vice president in the San Jose office of Gartner Group, praised Certco for its banking background and the distribution of liability for digital certificates. But he questioned the basic need for the company and its products.

"I think there's a big question of how big the certification market is going to be," he said. "Will it support the five or so certification authorities that are out there, plus the others that are bubbling up? I'm not sure the market will be large enough in terms of revenues and fees."

As for the micropayments side, Mr. Wheatman said, "I just don't see it. They're talking about a nickel for a poem, a dime for a couplet - it takes a lot of nickels and dimes to make a dollar. The electricity costs more - the computing time costs more - than sub-dime transactions."

Michael Parekh, a vice president of investment research at Goldman, Sachs & Co., said they can make it up on volume.

"When you multiply anything, no matter how small, by very large numbers, you end up with very successful businesses," he said. "It's going to take a few years."

Mr. Parekh sees "a lot of opportunity ahead" for Certco as banks and other companies experiment with on-line commerce. He said the ties to Bankers Trust are a big plus.

"A number of large banks are going to be thinking about the micropayments issue in 1997 and evaluating what various companies' strengths are in being able to offer these types of services," Mr. Parekh said.

Mr. Walker said Certco has a few contracts with banks and other institutions, as well as two other products under development. The only client he would name was the Utah state court system, which has licensed Certco's digital certificate technology. But he said interest has been running high among the financial institutions the company has approached.

"I think banks have gone through a progression of feelings about electronic commerce and the Internet," Mr. Walker said. "It started with fear, and that led to frustration. Now that has turned into 'Ah, this is how I can actually do this.' "

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