A person-to-person payment company has introduced a service that highlights the emergence of two camps of processors in this still-nascent market.

The company, Propay, made available this week an account that lets people execute their own credit card transactions, following the lead of a number of other person-to-person providers. Such companies are squaring off against a separate group that have built currency transaction systems on top of e-mail.

Observers said each approach has advantages. The credit card models, backed by existing regulations, are effective for parties that do not know each other. Payments by e-mail, meanwhile, are a good alternative for small transactions between trusted parties.

Propay, based in Orem, Utah, says it thinks its new Commerce Account is a potent threat to the merging PayPal and X.com. Once these e-mail-based payment providers are combined in a new company, to be called X.com, they will have the largest volume of all the providers in the burgeoning person-to-person market.

Propay has been testing its system for the last 45 days and expects to have 10,000 to 40,000 accounts within the next 30 days, said Bruce Wilkes, president of Propay. The company is targeting online auction sites and has already established itself as the preferred provider of payments on Boxlot.com and MyItem.com. Boxlot.com signs up to 20,000 sellers a month, Mr. Wilkes said.

Still, the new payment system has a lot of ground to cover to reach the volume of Palo Alto, Calif.-based X.com, which says it moves about $3 million per day in or out of its payment accounts. X.com has an agreement to process transactions on behalf of online auctioneer eBay, which in February had 1.8 million visits a day and 100,000 new users a day.

Propay's ability to protect buyers from fraud is its biggest weapon against X.com, Mr. Wilkes said. The Commerce Account, a Propay merchant account sponsored by the $63 million-asset Commercial State Bank of Two Harbors, of Minnesota, which changed its name last week to The Lake Bank NA, offers assurances that systems based on e-mail cannot, he said.

With Propay, sellers open a merchant account to accept credit card payments. Transactions are subject to all the rules and regulations of the credit card system, which put sellers on the hook for refunds if transactions are not complete.

"It is important for the buyer to have a level of protection," Mr. Wilkes said. "It is good for e-commerce as a whole because it keeps trust in the electronic transfer of funds."

"That credit protection is a very important factor," said James Van Dyke, a senior analyst at Jupiter Communications. "Trust looms large for anyone that exchanges."

In the X.com model, buyers waive all rights in the case of a dispute, because they open X.com accounts by transferring money from a credit card. This initial credit card transaction counts as the official transaction, rather than any subsequent exchange of goods. Thus buyers must rely on sellers for the successful and fair completion of transactions.

People using X.com have the same protection as people who send payment via e-mail, checks, or money orders in the mail, "where the buyer is relying on the seller," said Vincent Sollitto, an X.com spokesman.

X.com offers its transactions for free, while Propay charges 35 cents per transaction plus 3.5% percent of the total transaction.

Propay was formed in 1997 as a credit processing company and reengineered its model to accommodate person-to-person payments, Mr. Wilkes said.

Propay preserves the privacy of buyers by allowing them to complete transactions, including the entering of their credit card information, at a separate Web site called Web Pay. Sellers initiate the transactions by sending the amounts to be charged to buyers.

The Web site also enables individual sellers working offline, such as at an antique show or a garage sale, to accept credit payments. Sellers enter the buyer's credit card information into the Propay Web site, and the transaction is processed through the seller's Commerce Account.

Buyers and sellers can also use Propay's services to transfer money between accounts or between hand-held wireless devices, to fund their Propay account through a direct transfer from their checking account, and to transfer money from a Propay account to any checking account.

There are several providers of person-to-person payment systems based on credit card routines. Ecount lets consumers make purchases from a prepaid debit card account sponsored by MasterCard. TradeSafe.com, which has an alliance with FleetBoston Financial, provides an escrow service so consumers can accept credit card payments online. Billpoint.com, owned by eBay and Wells Fargo & Co., lets sellers accept credit card payments directly into their checking accounts.

Providers of e-mail-based payment systems include PayMe.com and Bank One Corp. with its eMoneyMail service.

Neither model has proven itself yet, but "everything is a threat to banks," said Brook Newcomb, a senior analyst at Forrester Research in Cambridge, Mass.

Mr. Van Dyke of Jupiter said he did not think a single model would emerge, but he agreed that banks were at risk of moving too slowly to dominate this market. "The challenger we haven't seen much is the banking community," he said.

"The banks need to align together to make p-to-p payments just as easy as using an ATM," he said. "They don't want to lose hold of the payment stream."

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