Royal Bank of Canada has agreed to a $20 million acquisition of Security First Network Bank, the first bank to do business with customers almost exclusively on the Internet.

As part of the deal, which was announced Monday, a Royal Bank official will join the board of Security First Technologies, chief subsidiary of the $54 million-asset bank.

The bank made a splash when it opened in the fall of 1995 but seemed to draw more media attention than customers. Executives at the Atlanta-based company began describing the bank as a "proof of concept" of the Internet banking software they were trying to sell. A few months ago, they began seeking to sell the unprofitable unit.

For Toronto-based Royal Bank, Security First is a U.S. beachhead and a new feather in its technology cap. Royal Bank is an owner of Meca Software LLC of Trumbull, Conn., and a member of the Integrion home banking network.

"This is the first step in the establishment of a retail banking presence in the United States," said John E. Cleghorn, chairman and chief executive officer of Royal Bank.

Executives at Royal Bank, which also plans to merge with Toronto- Dominion Bank, said Security First could be a building block for expanding retail delivery.

"This is the platform we have been looking for to meet the customers waiting for us on the other side of the border," said Jim Rager, executive vice president at Royal Bank. "It is not necessarily only about Internet banking."

If approved by regulators and shareholders, the deal would close this summer, the companies said.

Security First has had some success licensing its Web banking software. Fifteen of the top 100 banks have signed up, including Huntington Bancshares, Wachovia Corp., and the former Barnett Banks Inc., since acquired by NationsBank Corp.

And Security First executives said the investment by Royal Bank consitutes an endorsement. "They could have bought any bank they wanted, and they picked us," said Charles W. Ogilve, president of Security First Technologies.

But some observers cast doubt on the value of the transaction to Royal Bank.

"I'm not sure what it feels it was getting in acquiring Security First," said David Weisman, senior analyst at Forrester Research in Cambridge, Mass. If Security First Network Bank "survives, it will be more comparable to a community bank than to a Wells Fargo because they don't have the established, trusted name and they don't have the physical presence."

The deal calls for Royal Bank to pay $13 million for the deposits, loans, and securities of Security First Network Bank, or 1.3 times the value of Security First's $10 million capital investment.

Royal Bank will also license Security First Technologies' Virtual Financial Manager for $6 million and invest $1 million in the reorganized company, to be called Security First Holdings. Royal Bank intends to continue using Security First's data center for processing U.S.-based Internet transactions.

"This opens up the stealth invasion of the U.S. market by these Canadian banks," said Bill Burnham, analyst at Piper Jaffray Inc., Minneapolis.

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