A two-year-old Silicon Valley company has signed up six financial institutions and has six in trials of its software to build secure Internet-based networks.

Privately held Differential, founded by two former Apple employees, counts Chase Manhattan Bank, OppenheimerFunds, and Aetna Insurance Co. among its financial institution customers.

It hopes to attract more of the top 100 banks, brokerages, and insurance companies as they begin using the Internet for electronic data interchange, which normally is done by value-added networks.

International Data Corp. has predicted that the market for this type of electronic commerce, which was $1 billion in 1997, will increase to $10 billion in five years.

Differential's software lets banks build "extranets"-networks based on the Internet that allow two parties known to each other to exchange data. Intranets are similar but serve users within a single organization.

International Data has said it expects the market for intranet and extranet software to grow to $6 billion in three years. It said the worldwide base of intranet and extranet servers should reach 8.75 million units by 2000.

Chase's treasury solutions department is using Differential software called FileDrive to build a secure extranet transport for files transferred between it and its corporate customers.

OppenheimerFunds is using the same software to serve smaller brokers. The software makes confidential data available on a server outside the mutual fund firm's internal network, letting clients gain access to data without disturbing the integrity of the corporate intranet.

"It gives them the kind of flexibility and access that was only available to large brokerage houses," said John Sather, an OppenheimerFunds security engineer.

Aetna is in the early stages of using the FileDrive software to execute secure payment and reimbursement transactions via an extranet. It also aims to let corporate customers manage life insurance benefits via an extranet connection.

Richard Bell, senior research analyst at the Tower Group, said he believes Differential's ability to manage and audit data flow "is more interesting than the raw security elements."

He said existing Internet security, known as Secure Sockets Layer, or SSL, offers "a generally sound degree of security for communication but doesn't provide the infrastructure for auditing communications. That is one thing Differential has brought of notable value."

Buoyed by $3.75 million in funding from SoftBank Holdings and US Venture Partners, both venture capital firms, Differential recently released new versions of its software products.

FileDrive version 1.7 is the foundation software for secure file transfer and remote data processing. It can fix vulnerabilities in data exchange, said David Jevans, Differential's co-founder, president, and chief executive officer. Extranet Creator 2.0 Web server can manage and audit business-to-business electronic transactions with customers and partners.

Cupertino, Calif.-based Differential opened an office last week in Manhattan's financial district and is considering opening another in Chicago.

Mr. Jevans, 31, said his aim is for the company to be much larger in 10 years. "It's a hot thing using the Internet to transform the way financial services work," he said.

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