Safe Passage In Cyberspace

Viewed from one angle, it's just a new way to sell a bottle of wine. From another, Wells Fargo Bank's recent alliance with cyberspace wine merchant Virtual Vineyards is a key turn in a banking revolution that will rock the industry into the next decade.

Think that's hyperbole? Here's why it's not: In February, Wells became the first U.S. bank to provide a secure system for credit-card purchases over the Internet. Instead of phoning or faxing their credit-card numbers or sending them naked over the Net, Virtual Vineyards customers who order specialty wines direct from the vineyard's electronic catalog transmit their card numbers cloaked against thievery and fraud with a secret code.

Secure card-payment systems carry enormous implications for commerce on the Internet. So far, purchases made on it are dribbling in at under $100 million a year. But the convenience and protection of secure payment systems is expected to detonate an Internet explosion. Market researcher Killen & Associates predicts that $300 billion worth of goods and services will be traded over the Internet in 2000.

NO BRICKS. Not only that, secure payment systems will enable a whole array of financial transactions to take place on public networks. That should make it easier for banks to expand their franchises to other states and regions--not by building and acquiring bank branches, but by turning their customers' PCs into automated teller machines. "Buying bricks and mortar is a fatal distraction" for banks, says KPMG Peat Marwick banking consultant Richard Crone.

Not for Wells, whose stock has gained 167% in three years. In part, that's because Wells avoided expanding outside California, while other regionals went on expensive, dilutive acquisition sprees. Instead of overpaying for branches, "we can be current on the evolution of computer networking at far less expense," says Wells President William F. Zuendt.

First, Wells must prove itself on the Net. In April, with a small electronic-payments software startup called Cybercash, Wells plans to expand its card-payment system to 20 more merchants, with full rollout set for May. Wells hopes to draw many of its 26,000 existing card merchants and attract new ones.

BIG GUNS. Wells isn't alone. BankAmerica, KeyCorp, Norwest, and others say they plan to offer similar systems. MasterCard has linked up with a small company called Netscape Communications Corp., and Visa has given the industry pause by joining with Microsoft on a payment system to be introduced later this year. Startups such as First Virtual Holdings and Open Market Inc. have offered secure systems for months.

But most of the industry is moving slowly into networked banking, in part because many execs were burned by costly, fruitless moves into home banking a decade ago. They still see plenty of computerphobic customers, and they remain skeptical that even the techno-savvy will trust the Net with their hard-won earnings, security systems or not. But these days, PCs outsell TVs, and nonbank rivals are trying to take banks' business away. "Too many bankers have their heads in the sand," says William M. Randle, director of strategic planning for Huntington Bancshares Inc. in Columbus, Ohio. That's a dangerous place to be, especially when those sands are shifting.


Internet payment systems in the works

WELLS FARGO/CYBERCASH In February, the venture launched a secure system with retailer Virtual Vineyards. Full rollout is set for May.

MASTERCARD/NETSCAPE The bank-card marketer and the developer plan to test a system by summer.

VISA/MICROSOFT The two giants' system should be ready for rollout by yearend.

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