The future is serious business at Barclays Bank.

Hoping to get away-when appropriate-from banking's conservative and risk-averse inclinations, London-based Barclays in 1994 launched the kind of research and development effort that might have been more at home in a technology or pharmaceutical company.

Today the emerging markets group is 40 people, housed at the card operations center in Northampton, England. They are led by bankers who have risen enough above the day-to-day fray to talk like technologists.

"We have a cards background, but we work for Barclays as a whole," said the team leader, Roger Alexander, a 30-year Barclays veteran whose title is managing director.

"We believe cards have a future in electronic commerce," he said, hence Barclays' heavy involvement in smart cards, leading to various modes of Internet commerce and biometrics and other advanced security techniques. Its Barclaysquare on-line mall is a living laboratory, closely watched by bankers and other e-commerce aspirants around the world.

The timing of all it is testing is uncertain, but Barclays sees an advantage in having been in the thick of experimentation and controversy. Its aim is "to learn about these products before they hit the market in any significant way," Mr. Alexander said.

In any few minutes with Mr. Alexander and his top deputies, group directors Steve Collins and Mick Linnell, opinions fly as free as Internet content was supposed to be.

For consumer identification, they say, hand geometry seems more feasible than eye-retina scanning. They see less of a business case in stored-value smart cards than in portable digital certificates for customer authentication.

SET, the MasterCard-Visa Secure Electronic Transactions protocol, is "a solution, not the solution" for Internet payment security, Mr. Alexander asserted. Barclays is "agnostic" in the debate over smart card operating systems, said Mr. Collins, and "we haven't slammed any doors"-not even on Mondex, which is owned by MasterCard and not the Barclaycard's nearer forebear, Visa.

"We believe we have components and ideas that can contribute to new business models," Mr. Alexander said in a recent interview. "Putting them together in the right way can get electronic commerce moving more quickly."

For all its pioneering, Barclays' emerging markets group does not have the future to itself. Each of London's Big Four commercial banks- historically known as the clearing banks-has gone, in its own way, avant garde.

The cards division of National Westminster Bank produced the Mondex electronic cash system, which Mr. Collins admired as "extremely elegant in design." In 1996 and 1997, Natwest sold 51% to MasterCard International and most of the rest to other banks around the world.

Still a part-owner, Natwest kept an R&D legacy in an electronic markets unit that, retail banking chief and Mondex co-inventor Tim Jones said, "opens doors for us to go anywhere. We talk to a lot of niche software companies and big global corporations" that may not otherwise have found Natwest bankers very interesting.

Midland Bank, part of HSBC Holdings, was an early Mondex partner and, before that, lit a fire under the United Kingdom retail market by creating First Direct Bank, the first virtual, or branchless, consumer financial institution.

Lloyds Bank, having completed the merger and complex technology integration of Trustee Savings Banks, is being hailed by consultants and analysts as one of the most innovative, efficient, and profitable consumer banks in the world.

If Barclays' emerging markets group has a higher profile, it is because of the time it has invested, its roots in the nine-million-card Barclaycard business, and a visibility beyond what would be expected of pure laboratory research. In June, for instance, Mr. Alexander's unit released a smart card, Endorse. In its chip is stored a digital certificate for verifying the cardholder's identity in a government-sponsored document transfer system.

Endorse enables cardholder authentication at any computer with a smart card reader, a breakthrough in "portability."

"Contractual power is important in making e-commerce work," said Mr. Jones, an aggressive competitor but also a friend of Mr. Alexander's from their cooperative work in the 1980s on a defunct electronic funds transfer network. "They seem to have done a nice job with Endorse. We'll see where electronic commerce goes from here."

Mr. Alexander described Endorse as an example of how blue-sky thinking can open real-world revenue vistas. Mr. Collins said the authentication concepts had been under discussion as long as four years ago, and "the card as a key to on-line services evolved over time."

The U.K. government presented an opportunity to test Endorse on electronic self-employment notifications, and Barclays seized the chance to tie together its card expertise, the "trusted agent" aspect of its business charter, and its ability to use branches for cardholder enrollment.

Now Endorse is demonstrating how digital signatures can replace passwords-a phenomenon Barclays can explore in other areas of electronic commerce, including the Barclaysquare mall, and potentially with biometric security added on. There could be licensing opportunities. Mr. Alexander has been talking Endorse up in the United States.

"This type of service has real-world value," Mr. Alexander said. "We can see the utility. In stored value, people are still wrestling with who pays for what part of the system and whether there is a real consumer requirement. We know there is a requirement for this."

"To turn this into reality, we built every component," Mr. Collins said. "We're not aware of anyone else who has put this model together."

Back in 1994, Barclays executives were not sure how far its emerging markets group would take it. Four years earlier, duality-a bank's ability to issue both Visa- and MasterCard-affiliated card brands-came to the United Kingdom. It took that long for banks to come to grips with the marketing implications of duality and to begin to address a pernicious fraud problem.

Once those challenges were tackled, Barclays decided it was time to push innovation and called Mr. Alexander in.

"The Barclaycard CEO at the time put a team together to focus on the future," he recalled. "The assignment was to look at the business impact of new technology, but I don't think anybody knew what that meant at the time."

The timing was just right for riding the Internet wave, and it became an emerging markets group priority to disseminate its Internet "learnings" throughout the bank. The group also worked on two high-profile smart card tests-a Visa Cash trial centered in Leeds and the 120,000-card Northampton- Dunfermline experiment sponsored by the Association for Payment Clearing Services, which recently decided to mandate chips on all 104 million U.K. debit and credit cards.

Barclays' venerable brand name, interest in e-commerce, and overall sense of adventure come together in the Barclaysquare virtual mall. It is already three years old and, in keeping with Internet business mores, every bit a work in progress.

"At the beginning, we didn't think we'd still be talking about it after three years," Mr. Alexander said. "We were surprised and flattered by the attention. We saw it as a proving ground for new ideas and concepts. We put it on a new (technical) platform in September 1997."

Though still deep enough in R&D mode that it has not been advertised widely, Barclaysquare has enrolled 15,000 users and gets countless more casual visitors browsing a range of retail goods and travel and other services.

Mr. Linnell said the strategic thinking has changed in several ways. An early "build it and they will come" mentality has evolved into "give them reasons to come back."

"First we went to 'pretty' rather than 'functional,'" Mr. Linnell said. "Now it is cleaner and easier to download."

"We use the term 'consumer club,'" he added. "It has to be an environment that feels familiar, where you have consistent procedures and reliable delivery."

With credit cards the preferred means of payment on the Internet, there was never any question about "fit" with Barclaycard-as both issuer and merchant-acquirer. Like many transactional Web sites, offers a clear explanation of its security. But there is no mention of SET, a cause celebre in other parts of the card technology establishment.

"It's fine with us if others use it," Mr. Alexander said. But Barclays is satisfied with SSL-Secure Sockets Layer-until the questions and uncertainties swirling around SET are resolved.

Given credit cards' popularity, the group sees no urgency to institute other payment alternatives. But the R&D principles kicked in and Barclays struck a deal last fall with Cybercash Inc. to test the cybercoin virtual cash system. Because 40% of the mall site visitors are from the United States, the bank is readying itself for foreign "coins."

"We haven't learned a great deal yet because there is not a lot of volume," Mr. Linnell said. But efforts are under way to promote the Cybercash virtual wallet to consumers and to boost the number of participating cash merchants-only six were live as of last month.

"We need to stimulate interest, and then we can see if there is a business case and if this is the right system," Mr. Linnell said. "The one great thing about this environment is it allows you to change things."

"Everything we do is about learning," Mr. Collins said. "You have to get your hands dirty before you learn anything."

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