technologies if they hope to keep their payment services businesses from slipping away to nonbanking competitors, industry observers say.

Some see electronic wallets and digital certificates as offerings banks can use to shore up their transaction processing defenses.

"If financial institutions don't take the lead in enabling e-commerce transactions, someone else will have that direct relationship with merchants," said Kenneth J. Kerr, a research analyst at Stamford, Conn.-based GartnerGroup.

Yahoo Inc. recently announced that its registered users can now pay bills electronically through an arrangement with Norcross, Ga.-based Checkfree Holdings Corp.

Nonbank processors are fast, but some say they could face tough competition if banks start flexing their muscle with customer relationships and trusted brand names. "The tortoise won the race before," said Brook Newcomb, a senior analyst at Forrester Research in Cambridge, Mass.

Banks are exploring digital authentication and related methods to detect fraud and verify the legitimacy of virtual storefronts. Transaction verification and authorization are "no different than with credit cards, just a different technology," Mr. Newcomb said.

Catherine Allen, chief executive officer of the Banking Industry Technology Secretariat, a research and education arm of the Financial Services Roundtable in Washington, said that much of the action is still behind the scenes but that she expects banks to announce numerous initiatives in the next year or two.

Strategies range from offering Web sites as financial services portals to developing intranets for business-to-business commerce.

"Banks no longer look at technology as background but rather as an integral strategy for customers," Ms. Allen said. E-commerce "is not just about Internet banking, but it is changing the way they do business."

Janey Place, executive vice president of electronic commerce at Mellon Bank Corp., said, "Our question is how can e-commerce play in our business, not how we can play into e-commerce."

She said the Pittsburgh-based banking company has resisted jumping into areas where "we might not have competency" and has no plan to create a portal where people come for "flowers or wine." The aim is to create bundles of value for clients that include financial services.

"E-commerce is not a new game but a way to enhance the business we operate today and serve the customers," Ms. Place said.

Mellon has developed an Internet document exchange process, TradeLinks, that lets clients build on relationships with their trading partners. Its functions include collection of electronic payments.

Jay Kingley, head of the financial services practice at Diamond Technology Partners Inc. in Chicago, said banks are having trouble deciding whether their role is on the retail side of the business or as intermediary between buyer and seller.

In their rush to sell homegrown products to customers, he said, banks "have not yet come to terms with the fact their business is in the large world of commerce."

"In a few years, they will be so focused on integrating brokerage with retail banking because they believe that is where the on-line market is," Mr. Kingley said. "They have forgotten there are millions of businesses selling things like T-shirts, books, and cars.

"Digital certificates and smart cards have been steps, but the key is to differentiate the banking business from the retail bank products. Banks should be providing their traditional role in the commerce cycle with electronic solutions that are not bank-centric but are retail-centric, which is how they got their role in the first place."

"The more banks try to translate their traditional role in the payment system into the on-line environment, the larger risk they face," said Thomas Greco, president of ABAecom, the American Bankers Association subsidiary that is trying to encourage banks to play a certificate authority role in consumer and business authentication.

"Customers don't need those traditional services," he said; "they need other services, like the electronic identification. If banks don't pay attention to meeting the needs of the new on-line customer base, they may be missing business opportunities. Banks are uniquely positioned to take advantage of trusted identification."

Stephen C. Franco, vice president and senior research analyst at Minneapolis-based U.S. Bancorp Piper Jaffray, said very few banks are looking at ways to enter e-commerce. "There are a lot of untapped opportunities in the commercial side of banking relationships to provide leasing or real-time lending products in conjunction with the leading e-commerce vendors on the business-to-business level," he said.

Banks have access to small companies' books and have relationships with the large vendors these companies do business with. Banks can help automate their processing and sometimes their credit decision-making, Mr. Franco said.

Banks do not need to own on-line payment systems, he added. Rather, they need to focus on extending customer relationships by adding on-line products and services.

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