To date, E*Trade investors have had to send a paper check or use a wire transfer to tap their accounts to cover trades, margin calls, or future investments.
"This starts to make the Internet a more complete electronic loop. It eliminates the extra step and makes the Net much more convenient," said Forrester Research analyst Cliff Condon.
E*Trade's new service, which will be free to customers, spotlights an emerging area of financial transactions over the Internet.
Internet-based bill-paying is emerging as a significant new application. CheckFree has let consumers pay bills online for several years, mostly working through banks, but a majority of payments are made using paper checks.
For its service, E*Trade tapped National Processing Company's (NAP) VirtualPay system, which uses the automated clearinghouse system to transfer funds from a checking account into E*Trade. The ACH system is also used for automatic deposit of paychecks or scheduled payments of mortgages or utility bills.
NPC created VirtualPay as a fund transfer system developed for consumers to use personal checking accounts securely on the Internet.
NPC, which handles 400 million financial transactions a year in its mainstream payment processing business and had $373 million in 1996 revenues, is aggressively moving in other areas of Internet-based payment services too.
David Zook, executive vice president, said NCP is now testing a bill presentment service called VirtualBill, which makes a customer's bills available over the Internet.
Bill presentment is a new market. CheckFree has only been running transactions live since March. Other players include CyberCash and a new joint venture of Microsoft and First Data Corporation called MSFDC.