A start-up company in Cheyenne, Wyo., said it has created a safe and efficient way to buy and sell electronic information, anywhere in the world.

Payments can be made by credit card or other direct electronic means. But the system's designer, First Virtual Holdings Inc., put it together without the involvement of a traditional bank -- a sign of how the emerging "information highway" could compete with existing payment systems.


First Virtual built its system for the Internet, the global web of computer networks on which many companies are scrambling to create business opportunities.

Considering that many such ventures are no more tangible than the cyberspace where they might some day exist, First Virtual made a rapid breakthrough: Within hours after the Internet payment system was launched, the first merchant signed on from Helsinki, followed by a Dallas software company and a dozen more from around the globe.

This week, First Virtual president and chief executive Lee Stein was at the Department of Commerce in Washington, talking to officials about a way to sell electronic government documents -- the same ones that have been available free on paper.

"First Virtual has created the launching pad for what we believe will become the world's largest and fastest-growing cottage industry -- the buying and selling of information on the Internet," said Mr. Stein, a lawyer and accountant with close ties to the entertainment and music industries.

The company claims its payment system is the first to link credit cards, banks, processing agents, and the Internet. Various other efforts are under way to explore transactional uses of the Internet, ranging from catalogue shopping to financial electronic data interchange.

First Virtual's on-line system uses existing technology to allow consumers to buy things such as text, images, audio, video, games, and computer programs. Payments can be made by credit card or by having a demand deposit account debited via the automated clearing house.

Other goods and services are to become available over the network system beginning next year. The system now accepts bank cards, but Discover and American Express may be added later, Mr. Stein said.

Eventually, First Virtual plans to introduce a cobranded credit card with add-on features, including electronic mail notification to confirm each completed transaction.

The reason this kind of electronic commerce has not existed before, Mr. Stein said, is that most sellers could not qualify for credit card merchant accounts, and thus could not collect their payments.

Security has also been a hurdle, especially on the Internet, which was originally designed to make it easy for the scientific and government communities to gain access to and share information. Internet entrepreneurs like First Virtual must build security into their offerings.

"First Virtual will act as a clearing house," said Richard K. Crone, a senior manager at KPMG Peat Marwick in Los Angeles. "You don't have to pass sensitive critical account information over the Internet."

In the First Virtual system, a buyer and seller do not have to know each other before completing a transaction through a series of electronic mail messages. The only requirement is access to the Internet and a First Virtual account.

First Virtual operates a "closed loop" payment system. It charges customers $2 and sellers $10 to register. The merchant also pays 29 cents plus 2% of the sale amount on each transaction. Each time a payment is made to their account, sellers pay a $1 processing fee.

A consumer places an order by sending the seller an electronic message. Electronic Data Systems Corp., which provides data processing support to First Virtual, will transfer the buyer's account information to the merchant through its network -- not over the Internet. When the transaction is confirmed, First Virtual will send a message to the buyer to make sure she still wants to make the purchase.

At that point, the payment is effected. Or if the buyer does not want to go ahead, she can delete the transaction and her account will be credited.

EDS has created a way for the merchant to examine a customer's previous purchase activity to make sure there is no pattern of reversals.

"We shifted the risk of collection back to the merchant," Mr. Stein said. "We didn't see any other way for the information superhighway to work. It takes a paradigm shift in thinking to move into the information age," he added. "The rules are different."

And the players are different.

Plano, Tex.-based EDS said it has not been involved in any similar type of payment system. It is responsible for the information technology equipment and services including data processing, documentation, systems engineering, and the electronic settlement of transactions for buyers and sellers.

EDS plays a critical role in providing security for the transaction. Using its own network "off-line" from Internet, it does not have to resort to the data encryption technology that other companies, such as Cybercash Inc. of Vienna, Va., have adopted for on-line Internet transactions.

First USA Merchant Services Inc. will provide clearing, settlement, and authorization for the credit card transactions.

Aside from the fact that First USA is affiliated with a credit card company, First USA Inc. of Dallas, the First Virtual payment system was created independently of the banking system.

"There was no traditional banking mechanism set up to deal with the Internet," Mr. Stein said.

"Is First Virtual a merchant or a bank?" asked Mr. Crone.

Even though First USA treats the company as a merchant, First Virtual is like a bank in that it settles transactions between buyers and sellers, he said. And it has a direct collection relationship with the merchant.

Banks haven't jumped into this area of commerce, Mr. Crone said, because of a reluctance to open proprietary architectures and systems to offer the services in open channels.

"Banks could end up with a very small part" of the new commerce, Mr. Crone said, "and leave all the value-added to companies like Microsoft, Intuit, First Virtual, and the like."

With 25 million users of the Internet, "there's a tremendous upside opportunity for this to be a very lucrative deal for everyone involved," said Thomas R. Malin, division vice president of electronic commerce at EDS.

"This is really an evolutionary step in the next direction" of commerce, he added.

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