Michael C. McChesney has a dream: The next generation of Americans will be paying bills, trading stocks, buying mutual funds, and withdrawing cash in spare moments from every device imaginable - screen phones at airports, home televisions, office computers, and hand-held digital assistants. And the banks will control the infrastructure. "All these financial institutions are going to be interconnected through a very secure, very inexpensive global network," he said. "We are all going to be connected to this thing." Besides being partial to banks, Mr. McChesney's scenario puts at the core of this massive Internet mechanism Five Paces Inc., the Atlanta software upstart of which he is chief executive officer. On paper, Five Paces is a subsidiary of Security First Network Bank, the highly touted "first Internet bank" that opened last fall. But that is only because a software company cannot legally own a bank. The bank (see page 10A) serves as showpiece for the technological horsepower of Five Paces, which is working to sell its software, technology, and data processing to other banks. At the heart of Five Paces is Virtual Bank Manager, a product that a bank could use to set up shop on the Internet in three months or less. Customers could open accounts, pay bills, and manage their finances on-line. A $25,000 start-up fee includes Five Paces' technology, consulting, and technical support. After that, banks pay a processing fee to Five Paces of 75 cents to $4 per customer. "The banks all recognize their need to be on the Internet . . . but almost all of them have said: I've got to outsource it, because I don't have the expertise," said Charles W. Ogilvie 3d, president of Five Paces. "Twenty-five thousand dollars is nothing," he said. "That's the cost of an ATM. "If you're successful, yes, we get paid. But you're not stuck with a whole lot of costs if it doesn't work, if your customers don't use it." Several other companies are competing to help banks "go transactional" on the Internet's World Wide Web. Edify Corp. of Santa Clara, Calif., and Online Resources and Communications Corp. of McLean, Va., are two of Five Paces' direct rivals. Microsoft Corp., Intuit Inc., and Checkfree Corp. are among others seeking part or all of the action. Executives of Five Paces, the newest of the group, say their advantages include Security First, a living test bed for their vision. They also have a strong lineup of strategic allies, including Hewlett- Packard, Unisys Corp., Alltel Financial Services, M&I Data Services, and Synovus Financial Corp. Hewlett-Packard, which owns a companion technology called Virtual Vault, has its worldwide sales force flogging Five Paces, targeting the 400 largest companies in the world. "We've had conversations with at least 20% of them, and all are interested in what we're talking about," said Dennis Roman, banking segment manager in HP's financial services business unit. And then there is security. One bough on the Security First corporate tree is SecureWare, a division that has supplied cryptographic tools to the Department of Defense and other military and intelligence agencies for almost 10 years. Five Paces repeatedly points out that its banking products have the same airtight security. "Right now, in our opinion, we have the only secure solution out there," said James S. "Chip" Mahan 3d, Security First's chief executive officer and chairman of Five Paces. Competitors like William A. Soward, director of application marketing at Edify, naturally disagree: "Our system is more flexible, less code- dependent," he says. And Matthew Lawlor, president of Online Resources, called Five Paces' an "incomplete solution." "Five Paces has a very fine piece of Internet software," he said. "But it doesn't give the bank the capability to drive plain old telephones, to drive screen phones." Mr. Lawlor did compliment Five Paces' alliance approach, saying his own company could help Five Paces provide the delivery capabilities it lacks. David E. Weisman, who analyzes electronic commerce and banking for Forrester Research in Cambridge, Mass., said each of these companies has strengths and weaknesses, and all are fighting an uphill battle to allay bankers' security fears. The challenge for Five Paces, he said, is to convince potential users that its system is affordable, easy to install, and secure. That said, the company got off to an impressive start. Its investor group includes Huntington Bancshares, Wachovia Corp., and Area Bancshares. Huntington has already put its money where its mouth is, establishing a full-service Web site using Five Paces technology. Money from those banks and Security First's splashy initial public offering in May has helped make Five Paces' modest headquarters in a northeast Atlanta office park a prime destination for bankers, analysts, consultants, bank regulators, and journalists. So have the promotional efforts of Mr. Mahan, a media-savvy Kentucky banker and who used to work for Wachovia. The visitors, who come from all over the world, share a vague belief that the enterprise is at the cutting edge of cyber-hipness. Kimberly Humphreys, the company's in-house publicist, joined in April 1995, when there were about five employees. Now 120 work in the Security First/Five Paces/SecureWare combine, alongside 30 on Alltel's payroll. The staff of techno-savvy people in their late 20s and early 30s seems drawn from a casting director's vision of a film about Generation X. Lava lamps adorn desks, Internet magazines and books on computer programming languages fill shelves. Movie posters and other pop-culture artifacts paper the walls. Next month the company is moving to posh new quarters across from the Lenox Square Mall. They will include a state-of-the-art call center, 20 conference rooms, and an executive suite. And by yearend 12 more banks using Five Paces technology will be up on the Internet, Mr. Ogilvie said. "We think this market is going to explode, and we think we're going to have a large percentage of the market," said Mr. McChesney. Under his game plan, the banks will not only get on-line, but will control the critical identification and authentication systems necessary to validate electronic transactions. From there - maybe five or 10 years out - fiber-optic network links to homes will be routine, and entire communities will gain what Mr. McChesney calls "fast, ubiquitous, dial-tone access" to the Internet and, by extension, to their finances. "It's like 'The Jetsons,' " he quipped. "Maybe I'm a Chicken Little who believes that things will change more rapidly than they will, but that's what I believe." But Mr. McChesney, 40, said dealing with bankers is frustrating. Many are unnecessarily skeptical about security techniques, he said, or oblivious to the direction in which he thinks the world is moving. "I've been excited by how many bankers I've met who have been ready to believe and accept that things are going to dramatically change in the industry," he said. "But I've met an equal number who I think have their heads in the sand, who say, 'Yeah, well, I also heard that checks were going to go away - in the 1960s.' " When bank technologists get fired up about Five Paces' product, he said, people from other departments - and sometimes CEOs - throw cold water. "They look at it as just another PC banking channel," Mr. McChesney said. "They're still not looking at it as they should - as the fundamental change in the nature of what banks will evolve to in the next five years." One reason for the disconnect may be that traditional bankers and cocky technology people don't mix. Five Paces seems to say as much in magazine advertisements that show a banker wearing blinders, oblivious to change. And Mr. McChesney admits he moved from a bank to Fidelity, the mutual fund giant, 10 years ago: "Personally, I don't know why anybody uses a regular, traditional bank." "If you looked at how much money the banks are spending to make sure that they're taking care of grandma standing in the teller line, and you compare that to the amount they're spending to be prepared for the possibility that I'm right, it's incredible," he said. Richard K. Crone, a Security First customer and former electronic commerce consultant who recently joined Cybercash Inc., said Five Paces may have to "polish its diplomacy" in dealing with bankers and must offer them "a massive education" about how Internet banking works. One banker who visited Five Paces earlier this year and came away impressed was R. Scott Jones, chairman and CEO of Goodhue County National Bank in Red Wing, Minn. "I think they probably have set the standard for encryption and security, and all of us should be grateful to them," Mr. Jones said. "They made the investment, they took the risk, and I think they will be successful." Is his $210 million bank willing to take the plunge? Not yet. "We need to continue to do focus groups and surveys within our markets to find out what the need is," Mr. Jones said. "But it definitely is something we're thinking about." Five Paces' Mr. McChesney said most bankers move too slowly. "They keep looking at the other banks - they keep missing it," he said. "The risk isn't the other banks." The Security First/Five Paces empire owes its existence to a banker, Mr. Mahan, who started believing in the Internet when the mainstream press began covering it two years ago. Mr. Mahan, then president and CEO of Cardinal Bancshares in Lexington, Ky., was connected by marriage (their wives are sisters) to Mr. McChesney, a Wharton MBA and former venture capitalist who was running SecureWare in Atlanta. "Chip's interest originally was he just wanted to have the first Internet bank," Mr. McChesney recalled. Mr. Mahan asked Mr. McChesney to address the security problem. They set about finding a company to put the pieces together. "We met with Netscape when they were, like, 45 days old, and with Open Market when they were maybe six weeks old," Mr. McChesney recalled. "But after eight weeks of flying around the country, we couldn't find anybody who would cut a deal that was at all reasonable. "So Chip eventually said, 'Why don't you go ahead and do it?' " In the summer of 1994, Mr. McChesney revived the shell of a company he had once operated called Five Paces (it's also the name of his favorite beer dive) and appended it to SecureWare. That fall, he took a prototype of Virtual Bank Manager to a banking conference hosted by Montgomery Securities. Bank CEOs mobbed the Mahan-McChesney suite, leading the brothers-in-law to rethink their strategy for Security First Network Bank. "It became apparent that perhaps the greater opportunity was creating the technology and licensing it," Mr. McChesney said. Amid the high-tech IPO frenzy, Security First's share price jumped by $25 the first day, to $45. It retreated in the recent correction. "At this point, it's sort of a high-risk type of investment, as are many emerging companies, and they're all getting killed in this market," said Matthew Ziehl, a portfolio manager at Citicorp. "We just sort of shrugged at it." Warren Heller, research director at Veribanc Inc., a bank rating firm in Wakefield, Mass., likened the atmosphere to the early days of automobiles. "In the early 1900s, there were dozens of car companies that all had their conflicting visions for the car industry, and there was a tremendous shakeout," he said. "We're going to see that same thing here."

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