BankBoston Corp. and NationsBank Corp. are gearing up for the Financial Services Technology Consortium's electronic check pilot.

In what is regarded as a crucial test of the Internet for automating checks, the Department of Defense's Finance and Accounting Service will make payments to its contractors who are corporate customers of those banks.

BankBoston plans to begin accepting the payments at the beginning of 1998; NationsBank is aiming for the second quarter.

The Treasury Department's Financial Management Service will oversee the government role in the project.

"The trial is the culmination of the FSTC's two-year research initiative into an all-electronic payment instrument that will enable safe, secure payments over the Internet in business, consumer, and government markets," said Frank Jaffe, the consortium's electronic check project director.

"We expect this market trial to be the first in a series leading to a commercial rollout that will lay the groundwork for this electronic payment mechanism," said Mr. Jaffe, who also is senior systems consultant at BankBoston.

The Financial Services Technology Consortium was formed several years ago by some of the largest U.S. banking companies to coordinate technology research of mutual interest.

The check pilot initially will focus on about 50 government suppliers that have banking relationships with both NationsBank and BankBoston. BankBoston said it expects to handle about 1,000 checks a day, worth a total of about $1 million.

Over the course of a year, the test would be expanded to include more vendors and banks.

BankBoston, working with International Business Machines Corp., has installed a small server computer to process the electronic checks. This Unix-based server will perform the functions handled by reader-sorters in paper-based check processing.

When issuing an electronic check, Treasury will send the payment with related remittance information to the appropriate vendor, secured using cryptographic techniques.

After reviewing the payment information, the vendor will "endorse" the check and send it on to the bank. At both the vendor and government ends hardware tokens will be used to authenticate transactions.

Information Resource Engineering Inc. of Baltimore will supply smart card tokens and readers. Research Development & Manufacturing Corp. and GTE Corp. also contributed software and security components.

Electronic checks give the Treasury Department and banks "the opportunity to offer customers some options in terms of how they do electronic payments," said Susan M. Landry, senior product manager of emerging payment technologies at BankBoston.

"Certainly ACH and wire are still very good options for some customers, but not for all-and not in all situations."

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