Mellon Bank Corp. has launched an Internet-based electronic commerce service for its corporate customers.

The service, which uses encryption and authentication software from Premenos Technology Corp. of Concord, Calif., lets corporate customers send payments and related information to the bank over the Internet using standard electronic data interchange formats.

The deal is a new example of how banks are slowly growing more confident about the security of sending sensitive payment and business information over the public network.

Mellon says it is confident it can conduct secure transactions over the open medium after a six-month "testing" phase of Premenos' security features.

The goal of the pilot was to "try to kill the software," by cracking its public key-private key data encryption features, said Mauro DeFelice, manager of security and technical services at Pittsburgh-based Mellon.

"We wanted to make sure we knew what our risk was," he said.

A rising number of banks are looking to use the Internet as a channel for corporate banking transactions.

The attraction, according to Lawrence Forman, cash management analyst at Ernst & Young, is that the Internet is much cheaper than alternatives, like the automated clearing house network or value-added private networks.

But he said not all banks are comfortable with the Internet yet. Further, he questioned whether Internet security issues have been adequately addressed, and noted that many institutions, like Citicorp, remained "very wary of it."

Encryption measures are still relatively new technologies, Mr. Foreman noted, and "as volume picks up, the incentive for criminals to break these algorithms will grow," he said.

Several banks send and receive EDI payment transmissions over the Internet, including BankAmerica Corp., and Banc One Corp.

Chase Manhattan Corp. recently struck a deal with Premenos to conduct EDI transactions with Diamond Shamrock Inc., an oil refinery based in San Antonio, Texas.

Mellon's first customer for its new service is Bell Atlantic Corp.

Mellon now issues as many as 10,000 payment and payment-related transmissions daily. The bank receives files via the Internet, processes them with its EDI translation system, and initiates ACH transactions, Fed Wire electronic funds transfers, or issues checks.

Mellon has offered customers EDI services using payment formats found on the ACH network for five years. The Internet's advantage, aside from its ubiquity, is cheaper transmission rates.

The deal between Mellon and Premenos is mutually beneficial.

Mr. DeFelice said the bank, which licensed Premenos' software at a discount, can offer competitive EDI services to a larger market of business customers. Premenos gets access to Mellon's extensive corporate customer base.

Bell Atlantic at one point wanted to develop EDI software for the Internet with Mellon. But it scrapped those plans, opting instead to use software Premenos had already developed.

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