Virtual Open Network Environment Corp. - the network security company known as V-One - has developed software that lets businesses use smart cards to send and receive secure transactions on the Internet.

The technology, dubbed Smartgate, forms the backbone of General Electric Information Services' recently launched Interbusiness service.

The software is aimed at letting smaller businesses more easily and securely send transactions over the Internet without having to purchase and maintain costly electronic firewalls. Officials said it would give companies a secure way to access GE's network via the Internet.

"GEIS is our flagship customer," said Marcus J. Ranum, chief scientist at V-One in Rockville, Md. "This is technology that's working for GEIS today - it's not vaporware."

General Electric Information Services, a major provider of electronic data interchange, said it hopes the security software extends its reach into the potentially lucrative small-business market.

John Berry, a spokesman for the GE affiliate, said there may be as many as 100,000 companies worldwide conducting electronic data interchange transactions.

But he added that those companies only represent about 5% of all businesses that could reap the rewards of electronic commerce.

The Interbusiness service "will provide a way for larger companies to start reaching second- and third-tier members of their trading communities," Mr. Berry said.

GEIS' 40,000 corporate customers can offer Smartgate to provide secure "pipelines" through its network, he said.

The Smartgate middleware is "dropped" into existing data bases and networks, obviating the need to rewrite computer applications, Mr. Ranum said.

The security software provides an open platform that works with virtually all Internet-based applications. To use the service, customers accessing Smartgate software on-line require smart cards - in either physical or software form. After Smartgate software is downloaded, customers create passwords that are stored on "virtual" smart cards in an encrypted format.

The Smartgate provider then turns on the smart card. During subsequent transactions, the card and the server "challenge" each other's identity and establish "two-way mutual identification, which gives you one more (security) level than most systems currently have," said James Reed, a spokesman at V-One.

Mr. Ranum, the computer scientist credited with creating computer network firewalls, said there are plans for other high-profile pilots over next few months.

The security software has already been demonstrated in conjunction with several commercial products, including Citicorp's personal-computer banking service.

"I'm glad that our first big customer is announcing all this, but I would have been even happier if our first was a brokerage or health care company," which are other industries V-One is targeting aggressively, Mr. Ranum said.

"I've been pushing to develop this technology for pretty much any application you want, and EDI is one slice of it."

Torrey Byles, director of electronic commerce at Giga Information Group, a research organization in Norwell, Mass., said GEIS' reaching out to smaller businesses is similar to other efforts under way by competitors such as Sterling Software Inc. and IBM's Global Business Network.

He said such networks must develop such services to retain customers because "the world is going to the Web and the Internet" to do business.

Merchandise worth $500 billion annually was sold on-line last year, he said.

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