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May 31, 1999

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Virtual Cash Gets Real

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Intell-A-Check's direct-debit service automatically withdraws, or debits, money from a consumer's checking account and credits the account of a merchant or service provider. Merchants including Comcast, Consolidated Edison, GE Capital, NationsBank, and SureTrade use the service. NetGrocer went live with the system in early May and Staples.com expects to be in production with it this week, says Intell-A-Check president Lou Obssuth.

Online bill payments, whether by electronic check or some form of credit such as a procurement card--a card used to purchase goods from specific suppliers--have implications for business-to-business trade over the Net. "The Internet as immediate payment mechanism is invaluable," says Bob Shaw, CEO and chairman of World Commerce Online, the company building Floraplex, an Internet global trading network that ultimately will connect thousands of flower retailers, wholesalers, and growers. Floraplex plans to let wholesalers bid on flowers and make payments directly to the growers.

Credit-card companies, meanwhile, are working on new concepts such as letting consumers transfer cash from bank accounts via the Web to smart cards plugged into PCs. The cards can then be used to pay for goods and services--both online and offline. "The beauty of this is convenience," says Mary Buckley, a senior VP with Visa International Inc. Visa this year began a pilot with eight merchants, including Card Mart and Warner Bros., to take smart-card payments over the Web. Users will swipe smart cards through card readers on their PCs when they want to make a payment at a site. The pilot is scheduled to run through the summer.

Bob Shaw

The incentive for credit-card companies and banks to develop these cards, and the infrastructure to support them, is to find ways to make it more convenient for consumers to purchase items over the Web--and to support impulse buys in both virtual and physical stores.

Counting Content
Any doubts about the viability of E-commerce were erased by last December's holiday shopping season, when Web sales tripled over the same period the year before, according to the Boston Consulting Group and Forrester Research.

But as retail sites flourish, other businesses with products that don't lend themselves to credit-card payment have been left standing on the sidelines. With few exceptions, for example, media companies have not had success charging for content on the Web. Micropayment technology could change that. "The content on the Web today is a byproduct of the economics of the Web," says iPin's Buck. "Banner ads don't support much."

Buck believes more content would be available on the Web if content providers could make money at it--and says consumers would be willing to pay for content if it were easier to do. He may be right: Jupiter Communications estimates the market for paid content will grow from 1 million households in 1997 to 7 million by 2002.

Early experiments with micropayments involving technology from DigiCash and First Virtual went nowhere. DigiCash declared bankruptcy in 1998, while First Virtual left the digital money market to concentrate on Internet messaging. "A lot of these experimental payment types are based on engineering and mathematical models that bump up against the lack of a business model," says Scott Smith, president of the Tera Group, an E-commerce consulting company. Com- plexity was another problem.

CyberCash's CyberCoin service, launched in 1996, is a case in point. CyberCoin was based partly on the idea that people would pay small amounts of money--even fractions of pennies--for viewing content page-by-page on the Internet. Using a Java application that runs on a merchant's Web site, CyberCoin initially charged customer purchases to credit cards stored in an electronic wallet. Later, CyberCoin was able to debit checking accounts for online purchases.

The service was offered as an option with CyberCash's credit-card processing, and no additional technology was required by Web merchants. It's now used in the United Kingdom by Barclays Bank, in Japan by a consortium of 10 banks, and by financial institutions in Germany. Beyond that, however, CyberCoin hasn't caught on because people overcame their fears about using credit cards on the Internet. Also, pay-per-view business models, which would take advantage of such micropayment technology, haven't been successful. CyberCoin accounts for less than 1% of the nearly 1 million Internet payments that CyberCash processes weekly with 200 banks.

Citing lack of demand, CyberCash will ask merchants to stop using the CyberCoin service later this year. "The No. 1 issue isn't moving the money. It's not security either," says Bruce Wilson, executive VP of global business development for CyberCash and chairman of the Electronic Funds Transfer Association. "The issue is, how do we make it easy--so easy that tens of millions of people can use these cash products?" Simplicity is also important to merchants, he adds.