Microsoft Corp. and Verifone Inc. announced an alliance that puts Verifone in a strong position to process electronic payments on the Internet.

Microsoft agreed to incorporate Verifone software called vPOS - for "virtual point of sale" - into the Microsoft Merchant System. The Microsoft product, which is being tested by 175 merchants, is designed for sales of goods and services on the Internet's World Wide Web.

Because of Microsoft's dominance in personal computer software and Verifone's leadership in conventional card authorization systems, the companies could be close to setting a de facto standard for electronic commerce, analysts said.

"Verifone has scored a coup by getting Microsoft to distribute its software," said Adam Schoenfeld of New York's Jupiter Communications. "This could go a long way toward getting commerce on the Web."

Verifone makes about two-thirds of the point of sale systems used by merchants that accept credit cards. The Redwood City, Calif., company's Internet commerce division has aggressively sought to duplicate its "real world" role by facilitating payments between card-issuing banks and merchants.

With Verifone's software, the Microsoft Merchant System fills a security gap with a technology based on the Secure Electronic Transactions protocol, or SET, that Microsoft drafted during the past year with MasterCard, Visa, and others.

"Verifone's payment solution helps Microsoft provide merchants with the transaction capabilities required to make Internet commerce a reality today," Microsoft chairman Bill Gates said in a prepared statement Monday.

"Businesses that want to sell on the Internet now have a compelling solution ... for creating and managing an on-line store with real-world payment processing," he said.

"Microsoft doesn't want to reinvent the wheel as far as understanding all the point of sale functionality," said David Weisman, an analyst at Forrester Research, Cambridge, Mass.

He added that Microsoft's move could be a catalyst for other applications of SET. "I wouldn't be surprised to see Verifone's system bundled in with Netscape," said Mr. Weisman.

"In the virtual world, the challenge" is to provide "merchant software that delivers the equivalent of a storefront on the Internet," said Verifone vice president Roger Bertman. "This new agreement with Microsoft will solve that very problem."

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