In addition, the two companies also plan to publish a reference guide so software from other vendors that also support the Secure Electronic Transactions (SET) protocol can interoperate.
SET is a protocol being developed to assure credit card issuers and buyers alike that card data can be transmitted securely over the Net.
"We think this will help drive electronic commerce on the Internet," IBM vice president of electronic payments Mark Greene said. "There is a perception in the marketplace that SET is slow to take hold, and there is some notion of fragmentation as vendors or partners go off on their own ways. It doesn't feel that way to us."
VeriFone director of marketing for Internet commerce Elizabeth Ames said, "As market leaders, we felt it was an opportunity to show leadership to make [SET software] interoperable. This is really an effort on our part and IBM's part to show leadership to solve this problem."
But analyst Stan LePeak of Meta Group downplayed the announcement. "It's obviously something that they had to do, but it's kind of a no-brainer that they'll deliver."
Making SET software from different vendors work together is key to SET's success, and the interoperability question comes in two parts. The easier part is making consumer "wallet" software work with any merchant "cash register" software. The harder part is making the merchant software from one vendor communicate with bank "gateway" software from another vendor.
David Marshak, e-commerce analyst at Patricia Seybold Group, thinks the move will help increase confidence in Internet commerce. But he noted that for most standards, unlike SET, vendors who simply comply with the specification can interoperate, and that dichotomy may confuse some.
"Some [SET] products will meet the specification and not be interoperable, while others might not meet the spec and still be interoperable," Marshak said.
The IBM-VeriFone effort will focus on areas where the SET protocols allow options or extensions.
"Business rules implemented by financial institutions make that seamless interoperability a much tougher nut to crack," Ames said.
Because SET remains in test mode, that hasn't mattered. But if SET is to become widely adopted, merchants will want to send Internet transactions to any payment processor, not just to those with the same software vendor.
MasterCard and Visa applauded the announcement and said they expect other software developers to join in similar efforts.
The cooperation of IBM and VeriFone, now a unit of Hewlett-Packard (HPW), is necessary because the new protocol (SET 1.0 was published June 1) is somewhat ambiguous, requiring extensions that could limit interoperability.
The Developer's Reference Guide, due to be published by mid-1998, is designed to ensure interoperability between all software from IBM and VeriFone, and other vendors. The guide will be made freely available and will be submitted to Visa and MasterCard to include in future versions of SET.