Clarion calls are still the order of the day at leading- edge technology gatherings.

The sense of urgency was as strong as ever at last week's American Banker Future Money conference, which suggests many bankers still aren't getting the message: That unless they act now, their institutions will be overtaken by companies that are more savvy about the Internet and other emerging opportunities.

"It's late in the game and late enough to be concerned," said William Randle, senior vice president and director of marketing and strategic planning at Huntington Bancshares, Columbus, Ohio. "We've already lost time, so now we need to focus on the future."

He said commercial bankers "are beginning to wake up." The Bankers Roundtable's technology initiative, known as Bits, is "a last best effort at maintaining the industry's place" in emerging payment systems.

"Commerce is going to move into this environment because it is a lower- cost environment," said Dudley Nigg, executive vice president of on-line financial services at Wells Fargo Bank, San Francisco.

"If you can reach people at less cost and provide a more meaningful experience, people will move" to the alternative form of delivery, Mr. Nigg said. "It's inevitable," and bankers fail to act at their peril, he added.

He and others find support in market research. Some 30% to 40% of U.S. households have personal computers. Boston Consulting Group expects 13 million households to be doing PC banking in 2000, up from two to three million today.

Mr. Nigg cited a Forrester Research study, showing that 70% of PC owners would like to bank on-line.

He sees smart cards, serving as security and authentication tokens, going hand-in-hand with Internet banking.

Wells Fargo intends to issue cobranded smart cards next year to its hundreds of thousands of on-line customers, a bold move considering that about 50 of the top 100 U.S. banks do not expect to offer Internet banking in the next two years.

"What we need to do is get open standards and create interoperability," said Mr. Nigg.

"Companies like Microsoft and Intel will deploy smart cards unless we do," he said. "Yet we're the ideal people to authenticate, particularly as we already do that with loans. The real intermediaries, I believe, will be those that issue cards."

Microsoft understands where the world is going, Mr. Randle asserted. "The battleground has been defined, and the battle is under way." Of four payment protocols or standards circulating-SET, OFX, Gold, and Java-Mr. Randle saw Java as the only one that is truly open and interoperable.

MasterCard and Visa's SET-Secure Electronic Transactions-"is not good enough," said Matthew Lawlor, chairman and CEO of Online Resources and Communications Corp. "It is a nice transitional technology, which is key to repositioning the smart card as the authenticator. But it ties the customer to a particular financial institution."

Burt Kaliski, chief scientist at RSA Data Security Inc., defended SET as a single, open security standard, but "it does not cover shopping protocols, merchant financial settlement, home banking, and electronic checks."

Systems have to interconnect and be integrated so there can be party-to- party transactions and instantaneous final settlement, said Sholom Rosen, vice president and head of emerging technology at Citibank.

The opportunity for electronic money is in "cross-border payments," he said. "The Internet is a good fit for electronic money if it's party-to- party and secure. You cannot prove security, you can only prove insecurity," and the Achilles' heel is in management of encryption keys.

Philip Walker of Thomas Cook Currency Services Inc. said there needs to be a consolidation of standards among payment systems around the world. "We have to plan for the day when cash is eliminated," he said. "It is incredibly expensive to handle, easy to copy, difficult to transport, and not cyber-friendly."

On a more cautious note, Patrick Barron, first vice president and chief operating officer of the Federal Reserve Bank of Atlanta, said, "The check is not dead. It is not much beyond midlife. It's convenient, personal, and low-cost to the consumer. It is the check we need to compete with."

If the infrastructure for micropayments is here, why aren't more people using it?

William Melton, CEO of Cybercash Inc., Reston, Va., asked the question and offered an answer:

"Bankers are used to working with credit cards that have an average transaction near $100, with a $2 fee between the issuer and acquirer. So if they're looking at 10-, 20-, and 30-cent transactions, it's difficult to get excited."

Mr. Melton said micropayments are all about maintaining and extending bank brands, a need also met by simplicity in Web site addresses and design. "What is important is the brand, repetition, and presentation," he said.

He expects transaction processing costs to go down over time, brand maintenance and advertising costs to go up.

Because banks have trust and credibility, Mr. Melton said, "They need to stand up and say to their customers, 'We've taken care of this for you.' Unless they do it soon, others will."

Noting that Microsoft and Netscape will soon be rolling out new versions of Internet browsers, Mr. Melton said, "I don't see a bank's brand there. That's a missed opportunity and a problem."

Jay Simmons, senior vice president of the digital money and security vendor Certco, concurred that the infrastructure exists, adding, "Now we just need to figure out how to focus it and change people's behavior."

Public acceptance requires ease of use and "transparency" of technology, said James Wells, managing director of Furash & Co.

"Information and value transfer in the same message will be increasingly important," he said. "The risks of banks not playing allows others a strategic opportunity. Banks must defend their role in payments and play in every market and currency."

Gary Meshell, managing director of Price Waterhouse's electronic financial services practice, said the Internet is spawning a new breed of low-cost service, and new brands of competition are likely.

He warned that the banking industry faces a loss of control if it continues to let unfriendly forces into its backyards.

"If you're going to take a leadership role in micropayments," he said, "you need to make sure you're partnering with people who are bank- friendly."

Referring to Microsoft chairman Bill Gates' Internet strategy, the consultant said, "If he can't do it with you, he'll do it without you."

Seeing potential in electronic bill presentment, a potential $189 billion market by 2000, Mr. Meshell asked, "Who is signing up the merchants? Pete Kight of Checkfree.

"I haven't met one bank that has a bill-presentment merchant program. You need to act with the speed of a technology company and think like a retailer.

"The game is only beginning. Checkfree has no brand recognition, but banks have. So why have banks allowed this to happen?"

Jay Wilner, president and CEO of Cephas Multimedia Inc., a Kansas City, Mo., Internet service provider, said, "We need more leadership from banks ... for them to go to merchants to get them to set up mall fronts and then join with a Web developer."

At the moment, he said, there is a lack of strong partnerships between Internet servicers and the banking industry. "Be a champion and champion this technology," he urged.

Consumer privacy and confidentiality need to be addressed, said Sharon Powers Sivertsen, outgoing policy director of the Federal Deposit Insurance Corp.

Consumers don't want information about what they buy "to be traced," she said. "They don't want an audit trail." Unless bankers and regulators pay attention to those worries, electronic banking "just will not fly."

But neither she nor James D. Kamihachi, senior deputy comptroller for economic and policy analysis at the Office of the Comptroller of the Currency, had any ready solutions.

They adhered to the government line that premature regulation could hamper development of electronic commerce. They noted, though, that their agencies have or are developing guidelines on electronic services for banks and examiners.

"There are not any serious systemic risks right now with respect to electronic money because nobody in this country has much of a project going," Mr. Kamihachi said.

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