Automated teller machine networks have been left out of the electronic commerce equation so far, but network executives say they are taking steps to rectify that.

In comments last week at the American Bankers Association's Future Payments conference in Chicago, the chiefs of the NYCE and Cash Station Inc. networks said ATM cards -- also known as on-line debit cards -- would be perfect payment instruments for the Internet.

"There needs to be very efficient and secure access through the Internet to the checking account," said Dennis F. Lynch, president and chief executive officer of NYCE Corp. in Woodcliff Lake, N.J.

ATM/debit cards, which transfer funds out of checking accounts with little lag time and require the use of a personal identification number, could answer market needs for secure on-line transactions in real time.

These cards are not used in on-line commerce today, and many people in the industry view smart cards, with much larger information capacity and intelligent processing capability in their computer chips, as a more viable evolutionary option.

Mr. Lynch said smart cards also virtually absent in today's U.S. payment networks -- could wind up as the Internet's "ultimate payment solution." In the interim, he said, debit cards with PIN security would serve as a good bridge. That "interim could easily be 10 years," he said, creating an attractive opening for companies like NYCE.

NYCE, which serves 2,300 member financial institutions mainly in the East and Midwest, is "working diligently" to create an Internet version of a PIN-based debit card, Mr. Lynch said. He declined to give details, but called migration to the Internet an "extremely high priority" and a "tremendous opportunity" for NYCE.

Mr. Lynch said he suspects other networks are "making very substantial and real, material progress on these types of products," as are Visa U.S.A. and MasterCard International. Star System Inc., the largest of the regional ATM-point of sale networks owned by banks, has been actively exploring Internet debit possibilities, including the use of digital certificates for security and user authentication.

"All of the growth in payments is going to happen on the deposit-access side in the next five years," Mr. Lynch said. "One of us -- Visa, MasterCard, or some combination of our organizations -- will carve out that space."

Credit cards and, to a lesser degree, off-line debit cards from MasterCard and Visa have been the predominant consumer payment choices on the Web. Their popularity has made it difficult for several micropayment or virtual cash ideas to make much headway.

Off-line debit cards -- also known as signature-based debit cards, to distinguish them from PIN-based or on-line cards -- are processed mainly through the MasterCard and Visa networks and, like credit cards, take a few days to clear.

(Attempting to adjust prevailing debit terminology, Mr. Lynch took pains to refer only to "PIN-based" and "signature-based," saying the on-line versus off-line distinction can be confusing in the context of the Internet.)

The transactions processed by regional electronic funds transfer networks revolve around the presence of a physical card with a PIN -- features that have not been adapted to the virtual world. Executives at the networks say those features are the cards' biggest assets but are also obstacles in moving to the Internet.

"You can't say 'I left (the card) at home' ... and you have to remember your PIN," Mr. Lynch said. "That's why we're real-time. That's why we let people walk away with $400 or $500. You know how hard it is to get that money back."

Stephen S. Cole, president and chief executive officer of Chicago-based Cash Station, predicted that when debit moves to the Internet, it is unlikely that a physical card will be required. Consumers would probably consider it too cumbersome to buy a special magnetic-stripe card reader, he said. But the process could gain popularity if card readers were built into personal computers.

In an interview at the ABA meeting, Mr. Lynch said NYCE is working on a product that either "is or substantially emulates the physical card." Either way, the computer would have to be able to encrypt a personal identification number just as a PIN pad does at a store's checkout counter. On-line merchants would have to modify their virtual stores to deal with encrypted PINs.

Mr. Cole said networks are encountering a "chicken and egg" problem: Internet buyers cannot use their ATM cards unless merchants embrace them, and merchants do not want to make changes unless there is a market.

This has led some ATM network executives to consider collaborative efforts to boost on-line debit on the Internet. Mr. Cole said in an interview that he envisions the networks working together on PIN encryption software, just as Visa and MasterCard are probably "working like crazy" on debit approaches for the Internet.

Some efforts at a united front are under way. The Electronic Funds Transfer Association's network executive council is involved in a pilot with the National Automated Clearing House Association, Mr. Lynch said, but it is "premature for us to be talking jointly about" industrywide products or proposals.

Networks like NYCE and Cash Station are under pressure to redefine their roles in an age of banking industry consolidation and technological advances, and the Internet is one of those factors. As the regional networks consolidate into larger and potentially nationwide entities, some bankers wonder why there is not just one national ATM network.

The networks say they play a significant role as standards-setting organizations, and their technical infrastructure is of lesser importance. Even so, Cash Station and NYCE are broadening their service offerings in response to demands for relevance.

Within the next year, NYCE plans to give member institutions that offer Internet banking the ability to let customers transfer funds from one bank to another. Mr. Lynch said this capability has been around "forever," but bank policies stood in its way. Banks that resisted out of fear that their deposit balances would shrink are now realizing that customers' needs have changed.

Cash Station, with more than 600 member financial institutions, is hoping to offer Internet brokerage capabilities. "Traditional banks are under huge attack from traditional brokerage companies, who are using Internet access as a competitive weapon," Mr. Cole said.

Because many small to midsize banks lack the resources to shoulder this alone, Mr. Cole said, Cash Station may team up with a technology company to help them break into on-line brokerage. Mr. Cole said "the jury is out" on whether or not Cash Station can "effectively" enter this market.

Mr. Lynch and Mr. Cole said it is possible that convergence in financial services could prompt the networks to begin admitting nonbank companies -- such as Charles Schwab & Co. or Prudential Insurance -- as members.

"We are closed, but we are less closed than we have been in the past," Mr. Lynch said. One of NYCE's owners, Citibank, is part of Citigroup Inc., which also owns an insurance company and a securities firm, he pointed out.

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