Microsoft Corp.'s alliance with Visa International, announced last week, has the financial community taking a harder look at whether the software giant is on its side or too close for comfort.

Last month, Microsoft sent anxiety pangs through much of the banking community by signing an agreement to acquire Intuit Inc., the foremost producer of personal finance software.

The acquisition touched off fears that Microsoft, with its dominant hold on the personal computer software market, was aiming to cut itself a slice of the services that banks provide to consumers.

The software company contends, as it has all along, that it fully intends to work with banks, not usurp their traditional role.

Many feel the partnership with Visa, which aims to establish a secure means for bank card transactions to travel over computer networks, supports Microsoft's case.

Some bankers said their comfort level has gone up, because Visa has made bank control of customer relationships a tenet of its own home banking philosophy.

But other bankers getting active in the market for electronic commerce are still wary of Microsoft.

"My concerns are heightened" by the Visa-Microsoft deal, said William Randle, senior vice president for marketing and strategic planning at Huntington Bancshares, Columbus, Ohio. "One could argue that once they have Visa, they don't need the banks at all."

Mr. Randle, who is considered one of the industry's home banking visionaries, had previously expressed a fear that Microsoft might get a direct pipeline to bank customers, as personal computers and other electronic devices become standard tools for banking.

Playing out that strategy, he said, the banks' role devolves to that of "money mortuaries," passive repositories for consumer funds.

"I want to be absolutely certain that commercial banks are going to be involved," Mr. Randle elaborated. "There's nothing wrong so long as we understand what we're getting into."

He added that the Visa-Microsoft pact could still signal a "clear and present danger to the whole industry," and he questioned why Visa chose to ally itself with Microsoft rather than a banking partner.

"We are keenly interested in the reasons why those entities would get together," said Bob Winn, a vice president for global payment services at BankAmerica Corp., one of several big banks involved in the Commercenet, another electronic commerce initiative on the Internet.

All parties seem to be comparing Microsoft and Visa's plan with competing initiatives.

Among those offering electronic payment facilities over the Internet are Open Market Inc. of Cambridge, Mass.; First Virtual Holdings Inc. of Rancho Santa Fe, Calif.; and Mosaic Communications Corp. of Mountain View, Calif., now called Netscape Communications Corp.

Netscape, the provider of access software for the interconnected web of networks known as the Internet, announced an alliance last Friday with First Data Corp. to provide a secure on-line payment system. First Interstate Bank of California, Norwest Card Services, and Old Kent Bank and Trust Co. will be the first bank users.

CommerceNet has already begun to offer customers a graphical interface that creates electronic "storefronts" for companies to list goods and services for sale. Purchases over public and private networks would require a security component -- the likes of which Microsoft and Visa plan to develop -- to facilitate transmissions of credit card numbers and other private data.

CommerceNet officials said in April that such security capabilities would be available by September, but they didn't meet that target. Cathy Medich, the consortium's executive director, said the encryption method of security, enabling sensitive data to be transmitted in confidence over the easily accessible Internet, should be out later this month.

Visa representatives attended CommerceNet meetings earlier this year, according to Steven Dieringer, a group product manager for Banc One Corp.'s lead bank in Ohio and a member of the CommerceNet. He said the consortium has a number of pilots in the works and will be testing in early 1995.

Although the Visa-Microsoft alliance may compete with Commercenet and other initiatives, Mr. Dieringer took a broader view of the deal.

"It appears to be an endorsement of electronic commerce," he said. "I think as long as anything they do operates with other networks, it's a good thing."

The companies' Nov. 8 announcement is still very much open to interpretation, Mr. Dieringer said. He finds it hard to determine how open or proprietary the potential service from Microsoft and Visa will be.

Visa had been in talks with Microsoft since late spring, according to Carol Coye Benson, the bank card association's vice president in charge of payment system strategies.

She said Microsoft's recent advances in home banking did not affect Visa's decision to enter the partnership on data security -- even though Visa has been wary of both Microsoft and its pending acquisition, Intuit, for their designs on customer financial relationships.

Visa based its choice on Microsoft's technology strength and the reach of its Windows operating system, with 60 million copies in the market.

"Microsoft and Visa are not going into each other's businesses," Ms. Benson said. "This deal will not only preserve, but strengthen, banks' relationships with consumers."

Although the specifics of implementation have not been worked out, she added that this "security insurance" should encourage shopping on the Internet and thereby increase electronic commerce in general.

David Perry, group manager for advanced consumer technology at Microsoft, also pointed to a separation between his company's financial service aspirations and its work with Visa. The data encryption software it will offer, he said, will only enhance the banks' ability to gain fees by processing bank card purchases over computer networks.

"This is an enabling technology," he said. "We're giving an opportunity to banking and bank-related firms to do more business."

Joseph Pendleton, senior vice president for electronic banking at Meridian Bancorp, Reading, Pa., sees the alliance as a way for Microsoft to accentuate its talents as a help to, rather than competitor of banks.

The data security software "fills a gap that I've been concerned about for some time," Mr. Pendleton said. "I see this as Microsoft's forte.

"Just look at the penetration they have with products like Windows. I don't see anything ominous. The fact that they're working with Visa should make bankers feel more positive."

Some bankers still suspect that Microsoft is working toward having a complete electronic commerce pathway that lets banks do little more than act as a facilitator of very basic functions -- like holding deposits.

Along with Intuit and its industry-leading Quicken software for personal finances, Microsoft will also acquire National Payment Clearinghouse Inc., a Downers Grove, Ill., unit of Intuit that processes bill payments for banks and others.

"Microsoft is building an end-to-end commerce network, and they will have something to test sooner rather than later," said Carolyn Spicer, senior vice president of State Bank of Fenton, Mich., a unit of Fentura Bancorp.

"You have to have a broad vision of the future before you can define your part," she said. "We [banks] are just one part of a much bigger picture."

Ms. Spicer, a pioneer of home banking programs among community banks, said financial institutions are behind the curve because of this "lack of vision." But she added that banks also hold the tramp card of consumer trust, which they may be able to play as electronic commerce takes hold.

"I don't think they [consumers] will be as quick to abandon banks," she added.

But some observers see consumers as eager for the chance to move away from the traditional banking system.

"If banks want to offer subpar interest rates with savings accounts, no one in their right mind is going to want to put their money there anyway," said David Readerman, an analyst who is a managing director at Unterberg Harris. "They [banks] created their own problems."

Comparing the onset of electronic commerce to what happened with money market funds, Mr. Readerman warned that banks "had better wake up and get on board."

Many companies are, in fact, doing just that.

First Virtual Holdings introduced its own secured transaction system last month. The service allows customers to make orders using a combination of electronic mail, security codes, and toll-free phone calls.

Data encryption over Internet isn't necessary because the financial data move over a separate, Electronic Data Systems Corp. network. A unit of First USA Inc., Dallas, provides the merchant credit card processing.

Lee Stein, president of First Virtual, released a statement endorsing the Microsoft-Visa alliance, but he pointed out that the pair will not be the only game in town.

"Our system was also designed to permit encryption technology, once a worldwide standard develops and it is widely available," Mr. Stein said. "I don't think the rest of the world will allow Visa and Microsoft to dictate the system."

But Microsoft and Visa certainly pack a lot of power.

"Look at the main players -- put in one comer First Virtual and in the other Microsoft and Visa -- and I think it's pretty clear who the favorite is," said Mark Frieser, principal analyst for Jupiter Communications Co., New York.

"The smart money would go with Microsoft and Visa. You can't beat a company that has 85% of the operating systems on all computers in the U.S."

Although he does not believe the Visa/Microsoft partnership threatens banks as much as some believe, Mark Frieser, principal analyst for Jupiter Communications Co., New York, expressed some skepticism that Microsoft and Visa would make public enough information about their security system to "level the playing field," as they had promised.

"It does seem suspect when [Microsoft chairman William] Gates and company tell people they're being nice," Mr, Frieser said. "However, they do want to create as much traffic as possible for people to do business with credit cards."

"If I was a banker at a retail bank, I would get out of the way or jump on their bandwagon," he added.

One point that does not appear to be in dispute is the choice of data encryption technology from RSA Data Security Inc. of Redwood City, Calif. It has become a "de facto standard," according Thomas Gilbert, director of marketing for Network Systems Corp., a hardware and software provider that is introducing its own data security offering.

RSA was also the choice for the Mosaic-First Data alliance.

But Mr. Gilbert also expressed concern that banks -- which traditionally use encryption systems based on private keys to unscramble the electronic messages -- may have to adjust to RSA's more modern "public key cryptography." This method involves two separate keys -- one to encrypt, one to decrypt -- so that a user may make public one of the keys without making the encrypted data vulnerable.

Technicalities aside, banks may have to, alter much of their traditional thinking if they plan to succeed in the electronic marketplace.

"This is banking without banks. Institutions should be preparing, fighting to maintain control and stewardship," according to Richard Crone, a senior manager with KPMG Peat Marwick Consulting Group. "It's like trying to play the Super Bowl without prepping."

Mr. Crone viewed the VisaMicrosoft alliance as a nod to banks, a signal of the software company's "willingness to respect the banks' turf and their relationships with customers."

But overall, he is partial to the non-encrypted secure transaction system from First Virtual Holdings.

Put together with Electronic Data Systems Corp., the System does not depend on new hardware or software and it does not require that sensitive information be sent over public networks, encrypted or not.

"Anyone who understands the Internet will not feel comfortable transmitting numbers over it," he said, adding that there are "thouSands" of unknown junctions that could pose a threat.

"I see [Microsoft and Visa] as creating new commerce," Mr. Readerman countered. "The only thing banks have to fear is their own sluggishness in providing what customers want. They have a lot to be afraid of, but they have no one to blame but themselves."

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