The Check's in the ... Cyberspace
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The major wirehouses have progressed to the point where their clients can perform a number of functions over the Web, but there's still one hitch: Clients can't actually transfer money into and out of their accounts, to and from a third party, like a bank. That still has to be accomplished off-line.
But the day is coming soon when clients will not only be able to place trades over the Web but also issue electronic instructions to a bank to transfer funds to a brokerage firm. An on-line funds transfer pilot is set to begin this month; the project is called "Certificate Authority Interoperability Pilot."
Don't let the drab description fool you. The goal is actually quite exciting--to create and test technology that will allow the banks to authenticate digital signatures. The ability to authenticate signatures will allow cash payments from a bank to be made on-line to another party--called "merchants" under the project's parlance. The bank will know with absolute certainty that the person issuing payment instructions is indeed the account holder.
The pilot is being conducted under the auspices of the National Automated Clearing House Association's (NACHA's) Internet Council, a group of roughly 100 banks, technology vendors, government agencies and others who work on devising solutions for the problems of electronic commerce.
The reason NACHA and its partners, including the National Securities Clearing Corp. (NSCC), are trying to get brokerage firms involved is that "a lot of the payments that are taking place on the Internet are happening with credit cards, so the question is: 'Who needs to be able to set up a payment mechanism that can't use a credit card?'" says Dwight Arthur, managing director of technology for NSCC. "One of the kinds of businesses that comes up clearly is brokerage. You can't buy a mutual fund with a credit card."
At the moment, there are no brokerage firms that have signed up as participating "merchants." But, if the technology is successful, it's the brokerage firms who are expected to be among the early adopters. The group sponsoring the pilot is already in discussions with the Securities Industry Association (SIA), and the SIA had a demonstration of the project for its members at a February conference.
Show No Money Money itself will not be moving over the Web. The actual transfer of the funds still will be completed off-line, in the usual way, at least for the foreseeable future.
"If this pilot is totally successful, it will not move a single penny," Arthur notes. "It will, however, move a lot of [digital] signatures. We have to get the signatures right in a way that's technologically sound and acceptable to the [banking] regulators before we can actually get down to anything like moving money. That would be in a later phase," he says.
The pilot will get under way with four banks: Citibank, Bank of America, Mellon Bank and Zion's First National Bank. Six technology vendors are involved as well, including IBM and Verisign.
The first stage of the pilot should be completed by the fall. By year end, the participants will be making assessments of the program before proceeding further, says Scott Lang, NACHA's senior director of network products. Lang's expectation is that the first applications probably will be business-to-business and between government agencies and their vendors. Once the technology has gained acceptance at that level, it will filter down to the consumer level.
