Electronic banking is an experiment with great potential that banking regulators should let continue unrestrained for five years, even if consumers get hurt, Citibank's chief technology officer Colin Crook said Wednesday.

However, Mr. Crook said regulators may be tempted to intervene in the development of electronic banking on the Internet because of the likelihood of on-line crime. He told an American Bankers Association conference here that Internet banking could be a $1 trillion business by 2005, adding that "tons of fraud" is likely in its early stages.

Because the Internet is a combination of risk and opportunity, Citicorp intends to let pioneers, such as Mondex International, blaze the trail , Mr. Crook said. Citicorp will enter when the market is less risky, he added.

"Going off on the Internet is an experience of real flakiness," Mr. Crook said. "When the experiments have taken place and the markets begin to work, we have to adapt quickly and shift gears to the one that is successful."

Some of Mr. Crook's security concerns are anonymous users, encryption problems, and computer criminals. These can be overcome if the banking industry develops, among other things, methods of identifying users, time- stamping transactions, and transferring funds in a secure manner, he said.

Banks, he noted, must confront the special challenge of trying to handle people's money on the Internet. Having an established relationship with a familiar and trusted bank is the best way to ease customers' legitimate fears, he said. Mr. Crook predicted brand names and relationships will become important in electronic banking.

Electronic checks and credit cards will become the preferred forms of payment, over electronic cash, said Mr. Crook, because customers will hate paying a fee every time they click on a mouse.

"When we took off the fees for home banking in New York City, it exploded," he noted. "It went to 400% when we said, 'We want a relationship with you; we don't want a transaction with you.'"

Also at the conference, Sheila Burke, America Online's deputy general counsel, said her company fears the government will try to subject access providers to banking rules, such as Regulation E.

Mr. Smith writes for Medill News Service.

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