crown jewels over to a bigger organization.

The research and development consortium, which consists of major banks and technology vendors, has signed a memorandum of understanding for CommerceNet to take over its E-check project.

Known as FSTC, the consortium developed E-check as the functional equivalent of paper checks for the Internet, making use of electronic mail and digital signature technology. Viewed as a pioneering and potentially revolutionary payment alternative for cyberspace, E-checks have been undergoing testing by the Treasury Department.

The concept has not been as widely embraced as FSTC officers had hoped, and they expect CommerceNet "to broaden the audience," said Frank Jaffe, vice president and project leader of the FSTC and technology consultant at Fleet Boston Corp.

Five-year-old CommerceNet, a multinational, multi-industry group of which FSTC is one of more than 500 members, has established itself as "a premier association focused on Internet commerce," Mr. Jaffe said. Technology-providing members of CommerceNet such as International Business Machines Corp., Hewlett-Packard Co., Microsoft Corp., and Sun Microsystems Inc. have close ties to the banking industry and have worked with the FSTC.

"FSTC is at the point where it can't do anything more in its own organization to help promote the success of E-check, and CommerceNet can," Mr. Jaffe said.

E-checks, introduced in 1995, are modeled after paper checks and clear similarly, but they never exist as paper. Receivers digitally endorse them and deposit them at participating banks for electronic clearing.

The Treasury pilot, involving a handful of private-sector vendors, has been under way since June 1998 and is slated to last through March.

CommerceNet would become the manager of the pilot, which is currently supported by Fleet Boston -- owner of a patent on the E-check technology -- and Bank of America Corp. The test "proved E-check's technical viability," said Mark Resch, executive vice president and chief operating officer at CommerceNet. "Now we have to find out whether it can be adopted commercially, whether this is a solution for businesses."

CommerceNet would advocate the technology, and presumably would influence technology companies to develop software products and services that incorporate E-check.

Mr. Resch said an attraction of E-check is that it "meets real business needs and sets a solid foundation for a true e-commerce environment by integrating into today's business practices."

The FSTC agreement -- officials did not specify when they expect the transaction to be completed -- represents a deepening of CommerceNet's involvement in payments issues. In June 1998 it took over administration of the OBI -- Open Buying on the Internet -- protocol, an effort started by American Express Co. to promote business trade payment standards on the Internet. MasterCard, Visa, and a host of other companies support the protocol.

Mr. Resch said E-check and OBI are complementary. As an on-line specification for corporate trading partners, OBI deals only with on-line purchases and procurements and "has not addressed payments yet," Mr. Resch said.

CommerceNet would determine the structure of software license agreements while retaining close ties to the FSTC. Both organizations operate under not-for-profit charters. The FSTC and its members spent as much as $25 million to develop the E-check system, though Mr. Jaffe said it is impossible to quantify the tremendous amount of volunteer work put in by FSTC banks.

Though E-check has prestigious backing -- the core banking membership of the FSTC includes Citibank, Chase Manhattan Corp., Bank of America, Bank of Montreal, First Union Corp., and Wells Fargo & Co. -- the concept has some detractors.

George Thomas, senior vice president at the New York Clearing House Association and a member of the Treasury Management Association's Payments Advisory Group, said a substantial technology investment would be required by banks and corporations for systems in the areas of payments acquisition, transaction processing, digital signature security, and potentially smart cards.

When corporations consider these investments, they reconsider the traditional paper check and say, "Checks don't look so bad," Mr. Thomas said. "Instead of trying to create these new things, we have to figure out how to use what is already there and modify it," he said, offering the automated clearing house as a working alternative.

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