Microsoft's attempts to corner another part of the cybercommerce world has taken a severe blow after eBay, the online auction house, announced that it is tio drop the MSN Passport payment system from next month.

In future, eBay members will have to sign in through the site directly. "Once this takes place, the Microsoft Passport button that is currently displayed on Sign In pages will be replaced with links to a page with more information, including Help in case you cannot remember your User ID or password," said the eBay announcement, posted overnight. "As part of this change, we will also discontinue sending eBay Notifications through Microsoft .Net alerts."

eBay, one of the world's biggest e-commerce operations, was among the first companies to adopt the Passport in 2001. Monster.com, the job search site, dropped Passport in October.

Microsoft's response to this set-back was to remove its own online directory of websites using its Passport service.

"We have discontinued our Site Directory, but you'll know when you can use your Passport to make sign-in easier. Just look for the .NET Passport Sign In button!"

The online identity tool offered users a secure repository for their credit card and personal details for use in online shopping, while tying them to a Microsoft product and putting Bill Gates's software giant at the heart of every electronic transaction.

But the Passport service has been abandoned by other non-Microsoft-owned sites, seen largely as a reaction to a combination of customer apathy, system glitches and competition from the industry-backed Liberty Alliance. Identity theft, and a weakness in the system's secrity that was discovered in 2003, heightened concerns.

Leading online traders remained concerned about letting Microsoft stand between them and their customers. They feared that the company that controlled more than 90 per cent of the world's desktop computers might one day charge a toll on e-commerce transactions.

In October, Liberty Alliance - formed by Microsoft rivals including Sony, Hewlett-Packard and Sun Microsystems - signed up seven members to its own scheme and announced a full-time executive director, Donal O'Shea, formerly of IBM.

Even Microsoft was believed to be moving towards sidelining Passport until it launches Longhorn, the next version of the Windows operating system.

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