Wells Fargo & Co. is planning to issue smart cards by next year to all its on-line customers, a number that will climb well into the hundreds of thousands.

The commitment, outlined in a speech here by executive vice president Dudley Nigg, is the most specific and aggressive in the area of reloadable smart cards yet to be disclosed by a U.S. bank.

The cards would enable customers to make payments over the Internet and would authenticate the identity of the cardholder, Mr. Nigg told the Future Money conference sponsored by American Banker.

Saying advanced function cards will be essential for maintaining ties to customers in an increasingly high-tech society, Mr. Nigg said, "Wells Fargo will ensure that every one of our on-line customers will have a smart card in their wallet in 1998. We will not be disintermediated."

He said Wells has 330,000 people banking by personal computer, 180,000 of them via the Internet. Also by next year, Wells plans to have all those customers connecting via the Net rather than other dial-in channels. The San Francisco bank will be one of the early testers of the Microsoft Marble Internet banking architecture.

Wells has projected signing two million on-line customers by 2000.

Mr. Nigg said he sees a "confluence" of the Internet with smart cards in areas such as customer and merchant authentication, communications services, various payment services, and nonbank applications in retail loyalty, health care, and government.

Wells has banked on that convergence by becoming the lead investor in the U.S. Mondex franchise. By issuing hundreds of thousands of Mondex chip cards, usable for both physical and on-line commerce, Wells would far surpass the 50,000 cards-both Mondex and Visa Cash-that Chase Manhattan Bank and Citibank plan to issue for a pilot later this year in New York City.

Mr. Nigg said the Wells cards are likely to be cobranded with other program participants-a previously disclosed aspect of the bank's strategy to use the Mondex operating system known as Multos.

He said the cards will offer a combination of stored value, debit, and credit that gives issuing banks an opportunity to "re-intermediate" lost business.

"The industry is moving toward hardware authentication of transactions" on the Internet, Mr. Nigg said. "If we don't deploy cards, technology companies will. We as banks are ideally placed to do that, but will we?"

He warned that banks are in danger of losing their coordinating position in financial relationships to companies like Checkfree Corp., First Data Corp., or Microsoft Corp.-unless banks adopt a "new business model" that gives them a more realistic view of future returns on technology investments.

Coming from a West Coast market with PCs in more than 50% of households, Mr. Nigg has a deeper faith in smart cards and on-line banking than some others.

Patrick Barron, first vice president of the Federal Reserve Bank of Atlanta, told the American Banker conference that despite general agreement on the need for payments modernization, it is too early to determine if smart cards will be "a mainstream product." The key vehicle could end up being a PC or a WebTV type device, he said.

Matthew Lawlor, chairman and chief executive officer of Online Resources and Communications Corp., said smart cards should be "repositioned" to include both authentication and a reinforcement of the relationship between customers and their financial institutions.

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