Bidding to keep banks at the center of an emerging payment system, Integrion Financial Network and Checkfree Corp. are joining forces in an electronic billing and transaction processing service.

They said Wednesday they have formed a "10-year partnership" that will include an investment by the Integrion home banking consortium in Checkfree, a leading provider of home banking and bill paying systems.

The companies also presented themselves as a bank-friendly alternative to MSFDC, a joint venture of Microsoft Corp. and First Data Corp. that led many of the nation's biggest banks to assess their readiness for the electronic delivery and processing of bills over the Internet.

The coming together of powerful partners indicates that the competitive stakes are being raised even before the electronic billing business gets fully off the ground.

The competition for financial institutions' and billing organizations' loyalty between MSFDC and the Integrion-Checkfree pairing can be seen as a proxy for the intense rivalry between Microsoft and International Business Machines Corp., the driving force behind Integrion.

"Clearly there are only two camps now, Microsoft and IBM," said Brian Maimone, electronic commerce analyst at Furman Selz LLP in New York.

But to add a note of confusion to the subplot, Checkfree and Microsoft have been friendly on the issue of technical standards. Along with Intuit Inc. they are backers of OFX, or Open Financial Exchange, which has not heretofore been compatible with Integrion's standard, called Gold.

Peter J. Kight, chairman and chief executive officer of Norcross, Ga.- based Checkfree Corp., said the tandem expects to rely on Gold but see it "converge" it with OFX-a move that has been strongly encouraged by the Banking Industry Technology Secretariat, a unit of the Washington-based Bankers Roundtable that itself has been considering "bank-centric" approaches to a bill presentment and payment infrastructure.

BITS chief executive officer Catherine Allen said Wednesday's announcement shows bankers are waking up to the fact that such a service "is something billers and consumers want."

"The only thing slowing the emergence of electronic banking, billing, payments, and financial electronic commerce is who is really going to lead it, who do we follow, and how rapidly do we move," said Mr. Kight. "Billers are lining up at a rapid pace for bill presentment, but are just not sure where they should lay their bets yet."

William M. Fenimore Jr., managing director of Integrion in Philadelphia, said it and Checkfree offer "a bank-centric approach for the presentment and payment of bills. We expect to achieve economies of scale that will be difficult to duplicate."

It may also be difficult to duplicate the tightness of their alliance, given the complexity and potential dollar size of their financial transaction.

Integrion, consisting of IBM, Visa, and 18 major North American banks, is acquiring 10-year warrants to purchase 10 million shares of Checkfree. At Wednesday's share price, the warrants would be worth about $100 million.

Integrion would get the right to purchase three million shares of Checkfree at $20.9375 within 60 days of the contract. If certain performance targets were met, Integrion could buy the remaining seven million shares at the same price at various points over 10 years.

Checkfree has about 56.5 million shares outstanding, putting its total valuation at $1.6 billion based on a $29.125 closing price Wednesday, which was up about $3.22.

No other financial details were disclosed. The closing of the deal is expected in the first quarter next year, and joint services would be available in the first half, executives said.

Checkfree officials said they see 12% to 15% of U.S. households using on-line banking and electronic billing before full vesting of the warrants. A spokesman said that level could be reached by 2001.

Mr. Maimone, the Furman Selz analyst, said he viewed the Checkfree- Integrion deal as a monumental response to Microsoft's efforts.

"Banks want to differentiate themselves further from their competition, who they see as Microsoft and First Data," he said.

He said the issuing of warrants will give all parties an economic incentive to build volume on the Integrion system.

"From the biller's perspective, this is a very good thing because corporate billers are interested in anything that converts paper payments into electronics," said Nick Alex, senior vice president of NationsBank Corp., a leading Integrion member.

Lewis Levin, vice president of Microsoft Corp.'s desktop finance division, put the announcement in the context of previous Integrion statements that it would develop its own bill payment engine. Turning to Checkfree may indicate "that some of the banks have run out of patience."

He said Microsoft hopes Integrion and its banks will also consider MSFDC as an alternative. "Integrion sees itself as guiding the evolution of standards and services for the benefit of the banking industry. And that means not necessarily building a platform itself, or through one partner but making lots of opportunities available."

Two Integrion banks, Bank of America and Citibank, are on the MSFDC advisory board.

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