introduced a low-cost terminal that it says can lure small retailers into electronic payment systems. The device, a combination point of sale terminal and PIN pad, plugs directly into a computer or telephone line. It has encryption capabilities to protect credit card information and personal identification numbers when used for on-line or telephone purchases. ISED, which is privately owned and gets financial backing from Electronic Data Systems Corp. of Plano, Tex., is hoping to market the patented terminal - called Secure Encryption Device, or SED - through banks, processors, and retailers. Because of its simplicity and $75 price tag, the terminal could ultimately be distributed to consumers for initiating transactions in the home in conjunction with personal computers or telephones, ISED said. Hilary B. Thomas, president of the Morris Plains, N.J.-based developer, said the device would also allow independent contractors such as plumbers, gardeners, and carpenters to accept plastic payments. Both EDS and First Data Corp., the largest credit card processor in the country, have made preparations to capture data from the device and are promoting it, ISED said. Neil P. Marcous, executive vice president of EDS, said the product could "allow the formation of a virtual mall." He called SED "the solution" that will get home shopping and electronic commerce off the ground. Ms. Thomas said the hardware-based data security system, which mimics automated teller machine security, far outperforms the alternative, software-based encryption methods. "We're extending that security into the home," said Ms. Thomas. "It's a huge opportunity that will grow over the next few years." For now, small retailers are the target market. High-volume terminals sold by major manufacturers like Verifone Inc. cost much more than the SED, said Ms. Thomas. And the latter can accept both credit and debit card payments. "There's no question that what they're producing is less expensive than our authorization-only terminal," said Michael Shade, Verifone's vice president of chip cards. But "Chevrolet beats Cadillac's (price) every day." Mr. Shade said ISED is doing something that strategically makes sense - trying to convert the remaining paper-intensive merchants to electronic terminals. "We're certainly interested in accomplishing the same thing," he said. The terminals are manufactured by Logix Inc. of Denville, N.J., but Ms. Thomas said she would license the device's technology to Verifone or others. She also hopes to attract set-top box manufacturers for interactive television capability. Ms. Thomas and her colleagues ultimately would like to see the terminals distributed by banks and mail-order merchants directly to consumers for shopping via phone, interactive TV, and the Internet. A catalogue company, for example, might supply a terminal to build customer loyalty. The supplier, in turn, might earn interchange income when the consumer orders goods from someone else. The latter transaction would have to be switched among processors for final authorization and settlement. Currently 800 units are in the field and ISED has an order backlog, said Ms. Thomas, who is a former president of Minitel USA, a subsidiary of France Telecom. Daniel G. Alcorn, senior vice president of Chittenden Bank in Rutland, Vt., said the bank is testing the system with 40 merchants.

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