The prediction is bold but intriguing: A new payment switch will be built that facilitates real-time, nonrepudiatable payments through the Internet, connects to every bank, and will ultimately replace the Automated Clearing House network and perhaps other regional and national processing networks.

One person making the prediction — who has also built a prototype of what he calls the XML switch — is William M. Randle, executive vice president of Huntington National Bank; chairman of the board of the Smart Card Alliance; chairman of the authorization committee of BITS, the technology arm of the Financial Services Roundtable. He has had this idea for a while, but the time has come for it, he said, and opinion does seem to be coalescing around it.

The extensible markup language switch, which he calls “essentially a telco switch” with broadband information-ferrying capabilities, will not be cheap or easy to build, Mr. Randle said, but will be the only way to eliminate the fraud and authentication problems that have stifled Internet commerce. Once it is in place, all transactions will flow along virtual private networks between banks and various hubs. People will use some combination of chip cards, digital certificates, and biometric devices to identify themselves. Fraud will virtually disappear.

Others in the banking industry share Mr. Randle’s vision. But the chief custodian of the ACH, Elliott C. McEntee, president and chief executive officer of Nacha, the electronic payments association, says it is too early to declare as a foregone conclusion that such a system will be built. Far from fearing the demise of his own network, he favors the efficiencies that the XML switch would create, and says there is enough dissatisfaction with the speed and capabilities of the current system to prompt a lot of research into Web-based settlement networks. Moreover, he said, there still seems to be venture capital available for innovative payment companies.

“Nacha has a big study under way looking at doing that with the ACH network, making it all Web-based technology and XML formats and TCPIP-enabled,” Mr. McEntee said. “All the major payment networks have studies along the same lines, and whether it will come to something, nobody knows.”

Some banks and nonbanks are grasping for answers. “It’s a huge opportunity,” Mr. McEntee said. “Whether any of these things will succeed or not, I don’t know.”

Mr. Randle, who heads e-Huntington, the technology arm of the Columbus, Ohio-based bank, is a longtime champion of technology innovation. He applied for and obtained a patent on a real-time payment system in 1996, but efforts to build it did not work out then, he said, because the world was not yet ready for them. Now that 60% of Americans have Internet access at home or at work, “the critical mass is there,” Mr. Randle argues.

Under the system he has in mind, merchants would be happier because they would enjoy lower rates, and their traditional friction with Visa U.S.A. and MasterCard International might vanish or abate. With merchants, “There will be some sort of way to bring them into the system,” Mr. Randle said. “The big retailers haven’t been an integral part, and I think you’ll see in this new environment that they’ll be players. They’ll be involved in the governance.”

MasterCard and Visa will play important roles, but their roles as processors might be altered, Mr. Randle added. “This is where it gets dicey for them,” he said. “All their software will have to be rewritten to Internet protocol.” XML language is particularly good at packaging large amounts of data and sending it over the Internet.

“This will be a system between banks and their customers that will eliminate the ACH altogether,” Mr. Randle said. The new system would mean “guaranteed funds in real time, no float, very little opportunity for fraud. This is really a supercharged form of EBPP.”

He added, “If I have an XML switch capability from bank to bank, am I ever going to use the ACH? No. Why would you save items for a batch process over the ACH where you have repudiation, when you can do it in real time without repudiation?”

While the ACH and the switches that handle credit, debit, and automated teller machine transactions can only carry small message sets, the XML switch Mr. Randle envisions is “a pipe between financial institutions that would carry all the EDI that can’t go over an ATM switch.”

The system could be ready within two years, he said. “The next phase of extracting value from the Web is going to happen very quickly. We call it futuristic, but the technology is here, so it’s just a matter of building it.”


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