Five banks and five technology companies have agreed to participate in a digital certificate test sponsored by the National Automated Clearing House Association's Internet council.

The pilot is designed to demonstrate how financial institutions would issue and exchange digital certificates, which many banking and technology experts see as key to security and authentication of transactions.

Elliott C. McEntee, chief executive officer of the Herndon, Va.-based Nacha, said he hopes the pilot answers a number of questions, including "will a bank accept a certificate issued by another bank using a different technology provider?" and "what operating rules do you need to accept digital certificates flowing through the Internet?"

Each participating bank has paired off with a company vying for leadership in the digital certification field: ABN Amro Holding with International Business Machines Corp., BankAmerica Corp. with Verisign Inc., Citicorp with Entrust Technologies Inc., Mellon Bank Corp. with GTE Cybertrust Solutions Inc., and Zions First National Bank of Utah with its subsidiary, Digital Signature Trust Co., which relies in turn on Certco of New York.

Though the pilot will not involve real accounts or actual funds, Nacha hopes it will help establish a new high-tech standard for initiating paperless transactions.

"To do an ACH debit, you need an authorization from the customer," said Julie Foster, director of network products at Nacha. In the pilot, this authorization will be digitally signed using a derivative of data encryption technology.

By streamlining the authorization process, Nacha hopes to tie the automated clearing house network more closely to the emerging electronic commerce market.

Banks might be able to offer merchants the ability to present bills to consumers over the Web and permit them to be paid immediately via the ACH.

Netscape Communications Corp., the Internet software company, recently introduced into its browser the capability to handle digital signatures.

State government associations have also been involved in the pilot sponsored by Nacha's Internet council. It will be on display at the association's annual conference in Seattle in March.

The state groups-National Association of State Purchasing Officials, National Association of State Information Resource Executives, and National Association of State Auditors, Comptrollers and Treasurers-see the certificates as a mechanism for secure paperless payments.

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