If many bankers by Christmastime still do not know what an electronic wallet is, then America Online Inc. will show them.

The popular on-line network expects to enhance its service this year with a digital wallet, appearing on the personal computer screen, that will aid in making and processing payment choices and perhaps in tailoring future product offerings to personal preferences.

Wendy Brown, AOL vice president of electronic commerce, said this much at an Electronic Funds Transfer Association meeting last week in McLean, Va. And that was about all she would say, pending an official announcement and product launch.

But Ms. Brown sent a strong message that the future is finally at hand for mainstream distribution of an on-line analog to the physical wallet in people's pockets.

Several high-profile banks with remote delivery strategies have been exploring or developing digital wallets, particularly in the context of the credit card industry's SET protocol, which requires them. But few if any can match the distribution potential of AOL with its 13 million subscribers.

Their demographic profile is representative of the U.S. population, and AOL's experience in reaching them provides important clues to selling technology beyond the early-adopter segment, said Ms. Brown, who joined the company in 1996 after nine years with American Express Co.

"This is a consumer evolution, not revolution," she said. "Next year at this time we won't have 60 million people using smart cards on-line. But 44% of our users have done on-line purchases, and 84% have done research or shopping" before a purchase.

The biggest challenge is that "it is still too hard to shop on-line," Ms. Brown added. She listed a litany of obstacles, from cumbersome sign-up procedures to poor search engines to slow merchant response times, not to mention nagging concerns about security and privacy.

This is where the wallet might come in.

A year ago, e-commerce vendors including Cybercash Inc., International Business Machines Corp., Microsoft Corp., Netscape Communications Corp., and Verifone Inc. were strongly suggesting that bankers incorporate wallet software in their on-line strategies.

C. Lloyd Mahaffey, then senior vice president of Hewlett-Packard Co.'s Verifone subsidiary, told the 1997 American Bankers Association bank card conference that "the wallet in the (Internet) browser could be a strategic asset." He urged bankers to seize the opportunity to make wallets a key part of their customer relationships, lest they be commoditized and controlled by nonbanks.

First Union Corp. senior vice president Edgar Brown, appearing at last week's so-called fall summit of the EFT Association, warned of a "very significant threat" in the absence of bank-branded wallets.

"We are aggressively pursuing that technology," said Mr. Brown. "If we own the payment mechanism, we ought to own it on-line as well as off-line."

Ms. Brown, no relation, gave no indication of how bank-friendly AOL's strategy might be, but the Dulles, Va., company could give the general cause of wallets a boost.

Payment system developers like Cybercash, Trintech Group of Ireland, and GlobeSet Inc. of Austin, Tex., have revised their technological approaches in the wake of early missteps with SET, the Secure Electronic Transaction specification. To simplify the software that has to be loaded on a consumer's PC, they have shifted much of the processing burden to remote server computers. Wallets are now "thin," in contrast to the megabyte-size "heavy" software on compact discs that consumers found unwieldy and Cybercash and others had a difficult time selling.

Bruce Wilson, executive vice president of Reston, Va.-based Cybercash, said the company essentially abandoned its heavy wallet, not even submitting it for SET compliance testing. Cybercash's current posture is embodied in InstaBuy and the Agile Wallet system within it.

Currently in test mode and pointed toward making a holiday season impact, InstaBuy is designed to make the step from browsing to purchasing short and simple. Mr. Wilson described it as "one-click shopping, so everybody looks like Amazon.com."

Once a customer enters name, address, and card numbers, this information is stored on a secure server and does not have to be re-keyed later. The system is also easy to integrate and update with branding, marketing, and loyalty programs.

When InstaBuy was announced in August, Scott Smith of Current Analysis Inc., Sterling, Va., called it "a creative and solid solution" improving both consumer and merchant convenience.

Mr. Wilson said he could not comment specifically on AOL's plans, though the timing and particulars of InstaBuy corresponded quite closely.

"Wendy comes from a host-based perspective, a portal view of the world," he said, which differs from banks' more "fragmented" perspectives on their own customers and markets.

Ms. Brown said, "What we learn this holiday season will be very telling," and she said she expects a "war of the wallets" to ensue as the stakes become apparent.

She described 1998 as a year of early acceptance of on-line purchasing. Next year, she said, would bring added "utility," with consumers' accounts portable from one device or network to another, and a wider range of financial products and payment options.

She predicted "ubiquity" would arrive in 2000, with smart cards and widespread electronic bill presentment and payment.

"Consumers will always get what they want," Ms. Brown said. "If we don't give it to them, someone else will."

Mr. Brown of First Union said a bank stands to gain by being the first to put its wallet and brand before the on-line customer.

"If you get there first, you have an advantage that four other card issuers don't have," he said. "All the incremental transactions will be yours."

"Financial institutions will get serious," said Ms. Brown. "The question is whether they will be offensive or defensive." AOL and anyone else in the on-line world, she said, should prefer to be on the offensive.

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