ProPay, a distant second to X.com in person-to-person payments, is positioning itself for spiraling growth through an alliance with AuctionWatch.com, the monster of auction Web sites.

X.com, however, will be difficult to catch. The online financial services provider has three million PayPal person-to-person payment accounts, compared with ProPay's previously reported 100,000. Plus, X.com already has an alliance with AuctionWatch, which monitors activities at many popular auction sites, including Ebay.com, Yahoo.com, and Amazon.com.

Brad Wilkes, president and co-founder of ProPay, said the three-month-old company is tripling the number of visitors to its site each month. "The majority of growth is coming through auction sites, where people list accepted payment through ProPay, and we have our logo embedded at the time of purchase."

In trying to catch X.com, ProPay may have an advantage - its method of protecting users from fraud - though X.com is closing the gap.

ProPay of Orem, Utah, holds its accounts at the $63 million-asset Lake Bank of Two Harbors, Minn., which makes its transactions subject to the rules and regulations of the banking system and protects buyers from fraudulent sellers and undelivered goods.

To keep up with expected growth, ProPay has initiated discussions with a "much larger" banking partner to host its merchant accounts, Mr. Wilkes said.

X.com accounts, in contrast, are held by the company, which is applying for a bank charter. Customers who use credit cards to fund their accounts are protected by the rights and privileges offered by the card issuer when they make purchases, a spokesman said.

But because X.com is not a bank, customers who fund their accounts without a credit card have less formal recourse in case a transaction proves fraudulent.

On Aug. 1 the company introduced a program aimed at increasing protections for such debit transactions. It has pledged to give refunds to fraud victims, provided they have done their business with buyers or sellers that were verified by the company. To get verification, customers must prove they have a valid bank account.

Avivah Litan, research director at GartnerGroup of Stamford, Conn., took issue with X.com's approach. "The ad hoc verification is very weak," she said. "To verify a seller or a buyer, they simply verify that they have a bank account. They are operating under the assumption that if someone bothers to register the bank account, they are not likely to be a fraud.

"There are companies, like ProPay, that will look more attractive because they offer better protection," she said, "and they will cut into X.com shares."

Rodrigo Sales, chief executive officer of AuctionWatch, said ProPay's fraud prevention capability is attractive. "ProPay differs from PayPal," he said. "Fraud prevention offers buyers an added level of service."

AuctionWatch, founded in January 1999, has 400,000 registered users and was behind $250 million of auction sales in the first half. Sellers use its site to manage auctions they have running on multiple sites, and buyers are able to locate and purchase products available on many auctions. One of the post-auction management services it offers is online payments.

ProPay also supplies payments for the auction sites MyItem.com and Biddersedge.com.

James van Dyke, a senior analyst at Jupiter Communications, said online auctions are fertile ground for payment providers like ProPay, though the company "doesn't have the brand that PayPal and X.com have built."

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