Chase Touting EDI Pilot as the Dawn Of New Era for Electronic Commerce

Chase Manhattan Corp. said it is nearing a breakthrough in commercial business transactions on the Internet.

Using technology from Premenos Technology Corp., Chase has launched a pilot for electronic data interchange, or EDI, with a Fortune 500 customer, Diamond Shamrock Inc. "We expect this pilot to validate the Internet as an EDI delivery vehicle," said Mary McKenney, vice president of product management in Chase's global payment and treasury services unit.

Bank officials are hoping to have a full-fledged Internet product available next year.

Chase officials said they have been collaborating with Premenos for about a year to develop wholesale financial electronic data interchange - a service package that combines electronic funds transfers with related documentation - over the Internet.

The officials did not disclose the number of transactions being processed for Diamond Shamrock, a San Antonio-based oil refiner and longtime Chase cash-management customer. But Chase says predicts its several hundred corporate users of EDI services will a secure payment service attractive when readily available over the Internet.

Bank officials would not discuss details of their relationship with Premenos, an electronic commerce software company based in Concord, Calif.

Dan Federman, president and chief executive officer of Premenos, said it has an "excellent relationship" with the biggest U.S. bank.

David Hildes, a vice chairman of Premenos, said it regards Chase as a "premier Templar customer" and will "support whatever needs it has to get this business fully functional."

Templar is the Premenos software that uses data encryption technology from RSA Data Security Inc. to prevent security breaches when data are transmitted on the otherwise open World Wide Web of the Internet.

The Chase pilot entails two payment messages that the bank matches upon receipt. One is sent via a value-added private network - Chase did not disclose which one - and the other goes with Templar software via the Internet.

Chase said its efforts with Premenos will lead to the first commercially available financial EDI product over the Internet. Officials said they expect the pilot to end in several weeks, leading to a marketable product by early next year.

BankAmerica Corp. is piloting a similar service with Lawrence Livermore National Laboratory, a unit of the Department of Energy.

The laboratory began originating EDI transactions over the Internet a year ago, but no commercial product has yet resulted.

The Internet interests corporations such as Diamond Shamrock because of its wide availability and low cost. The conventional EDI market revolves around value-added communications networks that typically charge on per item basis.

Robert Becker, vice president and treasurer at Diamond Shamrock, said, "Ultimately we hope to use Internet EDI for electronic transfer of purchase orders, invoices, and payment instructions with all our vendors and suppliers."

Several dozen banks offer EDI services, but they do not have the market share of value added network specialists such as GE Information Services.

EDI Group Inc., Oak Park, Ill., says 30,000 companies can send and receive such transactions, but it is projecting annual growth rates of 26% to 30% through 2000.

Security concerns have been the greatest impediment to expanded commercial use of the Internet.

"We have had a number of corporate clients come to us with questions about Internet security and electronic security," said Thomas Fitzgerald, a business development manager at Chase.

He added, "it's an issue that can be addressed," especially as more companies become comfortable with the public-private key method of data encryption. It involves the selective sharing of decoding formulas, or keys, that shield encrypted messages from unauthorized parties.

"Companies know that if banks are comfortable moving money or sending payment instructions on-line, then they can be comfortable exchanging purchase orders and other documentation on-line," Mr. Fitzgerald said.

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