Belying the stodgy stereotype of a paper-pushing government department, the Treasury has become an envelope-pushing payments innovator.

A veritable research and development laboratory, the agency has been testing everything from smart cards to biometric security to a new wrinkle in data encryption technology known as elliptic curves.

All sorts of Internet payment options have gone under the Treasury's microscope, including electronic checks and digital cash.

The man at the center of all this activity, Gary Grippo of the Treasury's Financial Management Service, said the agency wants to "test all of the emerging electronic protocols that are moving to the Internet." It ultimately wants to identify and promote standard methods for governmentwide acceptance of on-line payments.

"The one thing we want to avoid is 150 different implementations with 150 different levels of security," Mr. Grippo said, referring to the approximate number of agencies. "Our goal here is to develop a governmentwide security architecture that the Treasury could implement that will allow all these agencies to get on-line and collect from the public."

Bankers and businesspeople who promote electronic commerce are all for this. The government is already using technologies such as smart cards and digital authentication. As it opens up its on-line dealings to the public, e-commerce could become more of a mainstream reality, closer to the much anticipated goal of permitting anyone to deal with anyone else at any time via the World Wide Web.

Having actually accomplished things along these lines, Mr. Grippo, the Financial Management Service's project manager for electronic money, is held in reverential esteem by bankers who have worked with him. They say his open-mindedness has countered skepticism among corporate traditionalists.

"Gary and the Treasury have been able to keep a number of significant players in the smart card business," said Michael G. Love, vice president of First Union Corp., whose lead bank is among several working with the Treasury on stored value systems at military bases.

The Treasury "has given us the wherewithal to defend the stored value strategy that we have in our companies," Mr. Love said. "I think that's very significant."

Frank Jaffee, project manager for electronic banking at BankBoston Corp., said, "They are being exceptionally aggressive and very intelligent." Mr. Jaffee works with Treasury officials on the electronic check pilot for Department of Defense procurement.

"It's a bit of a surprise," Mr. Jaffee said, "because you don't think of the government as being particularly aggressive or intelligent about these things."

The Treasury is not the only federal agency encouraging innovation in electronic commerce. The General Services Administration's newly revamped commercial card program includes advanced reporting systems and some smart card applications. Bankers speak glowingly of spillover benefits to the private sector from the purchasing, travel and entertainment, and fleet cards that several banks are issuing to government agencies.

Gary Glickman, a consultant who works on government card and electronic benefits transfer programs, said the Treasury and GSA are "taking a lead" on this broad array of payment technologies.

These agencies are "really ahead of the banks and the commercial infrastructure at this point," said Mr. Glickman. His firm, Phoenix Planning and Evaluation Ltd. in Rockville, Md., is a division of Maximus Inc.

It is, in a sense, a throwback, Mr. Glickman said. "If you look back years ago, the government-Treasury in particular-did a lot of work on electronic payments and really started the automated clearing house and direct deposit programs. There was probalby a hiatus of innovation for a few years, and now they're back taking the lead."

The Treasury effort is different from GSA's in several respects. The department tends to sponsor limited experiments, as opposed to a governmentwide rollout. The smart cards that GSA has in mind can perform many tasks, while the Treasury has concentrated on single applications.

GSA aims to provide a role model for plastic card use. The Treasury wants to create standard payment methods for the agencies it serves, Mr. Grippo said.

"We're a central service agency that is responding to the financial needs of customers who come to us with problems," he said. As the government's payer and collector, the Treasury has "a direct stake in the overarching strategic movement of the payments system.

"We see a flurry of new payment mechanisms entering the payment system- like e-checks and e-cash and various Internet protocols-and federal agencies are going to demand to use them in transacting with the public," he said.

Mr. Grippo, 29, said the program he oversees has five "prongs:" stored value cards, electronic checks (or on-line debit), electronic credit card transactions, electronic cash, and digital signatures.

In smart cards, the Treasury is working with four Army bases and one Air Force base on programs that replace cash with value stored in the cards' computer chips.

More sites are forthcoming, Mr. Grippo said, and discussions are under way with the Navy and Marines. Military installations are "clamoring" for stored value, he said, "because it saves a lot of money." A preliminary study showed bases equipped for electronic cash reduce expenses by $200,000 to $500,000 a year.

Overhead can be cut in terms of finance and payroll staffs, paperwork, and time spent on personal money matters.

"We're using the chip strictly for the financial piece," Mr. Grippo said. "That's indicative of our approach here. We're not looking to find a lot of business processes to put on a card-we're looking for specific, limited, solvable problems that we can use this technology for."

Fort Sill, Okla., the one Army base that uses the fingerprint form of biometrics, is "very happy" with it, but the technology is too expensive to deploy more broadly, Mr. Grippo said. As prices come down, "I think biometric protection of these kinds of cards in our closed military environments and other government environments is our direction."

Fort Sill is showing that biometric protection of smart cards is "close to ready for prime time," said Oscar R. Pieper, president of Identicator Technology Inc., the California-based fingerprint system vendor that worked with the Treasury on the project.

The installation won an innovation award at last year's Cardtech/Securtech show, with the Treasury and Mellon Bank's network services unit sharing the honors.

Some hospitals and Veterans Administration medical centers are also using smart cards. Mr. Grippo foresees placing them in facilities such as prisons and law-enforcement training centers.

These installations "solve a business need," said Mr. Love of First Union, which is involved in a two-year-old smart card program at Fort Leonard Wood, Mo.

"When we went out and did our open market programs during the (1996 Atlanta) Olympics, we tried to tell customers that stored value was better than cash," Mr. Love said. "Customers told us that in an open-market, limited-usage environment it's really not better than cash."

By contrast, the military "had a need to reduce expenses related to cash handling," he said. "We look at the program not as a retail-based program, but as a cash management program."

First Union recently became the second bank in the electronic check pilot, which began last July with BankBoston. The Defense Department has been the guinea pig. It is using an e-check specification of the Financial Services Technology Consortium-a group of major banks undertaking cooperative technology initiatives-to purchase goods on-line from certain vendors.

Vendor enrollment has been slow. Mr. Grippo said that was mainly because of a fiscal-year change during the recruitment period, when contracts were in a state of flux. He said participating vendors are pleased and complain only that transaction volumes are low.

The suppliers "like the convenience of transacting on the Internet and having the remittance detail delivered by e-mail," Mr. Grippo said. "The one drawback we have is that we haven't been able to generate more payments or more contracts to these vendors."

Mr. Jaffee from BankBoston said the Defense pilot was originally scheduled to end this summer but will likely last longer and draw in other agencies.

He said the Treasury is "gaining first-hand experience with every sort of methodology and approach. If they've missed any, I'd be surprised."

The only question mark, Mr. Jaffee said, is a plan for digital cash, which has stumbled in other attempts to gain a private-sector foothold.

Mr. Grippo said the Treasury is "actively pursuing" electronic cash technology. "There are a couple of things brewing with several banks, but it's all under nondisclosure," he said.

"We want to test the various payment protocols on the Internet-a cash protocol, a debit protocol, and a credit protocol," Mr. Grippo said. "Our key goal is to see if this technology, which uses e-mail as a delivery mechanism, is suitable for federal payments and collections."

That approach makes sense because "anybody can easily get an e-mail address, and therefore we can easily transact with them."

Some agencies already accept Internet credit card payments from the public, Mr. Grippo said. For example, the Federal Communications Commission accepts certain fees, and the Bureau of Engraving and Printing sells some items.

The American Battle Monuments Commission is accepting contributions for a World War II memorial through its Web site. (These activities are separate from the Internal Revenue Service's acceptance of credit cards for tax payments, which do not go over the Internet.)

The Treasury tested the Secure Electronic Transaction protocol for Internet credit card payments. Reflecting general transaction-services industry impressions, it found that the MasterCard- and Visa-sponsored specification was too slow-both in its speed to market and processing efficiency.

The agency finds the prevailing level of Internet transaction security, based on the Secure Sockets Layer session-encryption standard, adequate and is "not actively pursuing SET implementations," Mr. Grippo said.

He does want to test another technique, account authority digital signatures, which has been touted as a more efficient approach to customer authentication than traditional certificate authorities, or CAs. The latter require complex management hierarchies that the AADS method simplifies by attaching certificates to, say, credit card or bank account records.

Mr. Grippo also waxes enthusiastic about elliptic curve cryptography, which requires less computing power than the standard methods associated with RSA Data Security Inc. and therefore seem well suited to small "form factors" such as pagers, cell phones, palmtop computers, and chip cards.

Two of the champions of account authorities-the husband-wife computer scientist team of Lynn and Anne Wheeler of First Data Corp.-have struck up a relationship with Secured Information Technology Inc., a California-based start-up with elliptic curve patents that could facilitate AADS with smart cards.

"We conducted a test of elliptic curve technology over the Internet for credit card transactions, and it was very successful," Mr. Grippo said.

"As soon as NIST (the National Institute of Standards and Technology) comes out with its direction on just what curves are going to be suitable for federal use and some other security parameters, you'll see a lot of use of elliptic curve by our bureau," Mr. Grippo said.

The best known vendor of elliptic curve, Certicom Corp. of Toronto and San Mateo, Calif., participated in a Bureau of Engraving and Printing pilot coordinated by Mr. Grippo's group last year. Mellon Bank Corp., Zions Bancorp. of Salt Lake City, MasterCard International, GlobeSet Inc., Schlumberger, Rainbow Technologies, and others contributed.

"It's great to see the government taking a leading role because they're mitigating the risks that the private sector sees," said Jennifer Vancini, Certicom's director of electronic commerce.

Government endorsement of elliptic curve "would definitely assure people," she said. "There would be money going out into products. It would make it that much easier to get it adopted in the private sector, and lots of private sector companies want to approve it."

Ms. Vancini called Mr. Grippo "one of those rare people who can straddle being a visionary with being pragmatic." She said he has a sense of when a technology is ready to "move into the mainstream."

Given his government position, "he has to be kind of conservative," she said. "But when you're in charge of electronic money programs, you have to take some risks."

Mr. Grippo joined the Treasury eight years ago, after graduating from Harvard College. Before assuming his current position in 1996, he was a writer of financial regulations.

In conducting its e-commerce work, the Treasury is simply living up to its mandates, Mr. Grippo said. "We have a strategic interest in understanding where the payment system is heading over the long term and making sure we have an independent, direct capacity to use these new technologies."

"He absolutely understands the real world," said Mr. Pieper. Speaking of the Fort Sill test in which his company, Identicator, worked with the Financial Management Service, Mr. Pieper said of Mr. Grippo:

"He recognized that if you really want to get good test results for any type of new technology, you have to put it in an environment where you can control it-where you don't have to worry about a whole bunch of outside influences."

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