...Wherein I get quoted in the NYT, for the first time in my life, using "bummed out". Oh, well. At least they spelled my name right... :-). Cheers, Bob Hettinga --- begin forwarded text Mime-Version: 1.0 X-Sender: rah@pop.sneaker.net Date: Mon, 30 Nov 1998 20:35:32 -0500 To: Digital Bearer Settlement List <dbs@philodox.com> From: Robert Hettinga <rah@shipwright.com> Subject: Electronic Cash for the Net Fails to Catch On Sender: <dbs@philodox.com> Precedence: Bulk List-Subscribe: <mailto:requests@philodox.com?subject=subscribe%20dbs> X-Web-Archive: http://www.philodox.com/dbs-archive/ --- begin forwarded text Date: Mon, 30 Nov 1998 20:28:03 -0500 From: "Robert A. Hettinga" <rah@philodox.com> Reply-To: rah@philodox.com MIME-Version: 1.0 To: rah@shipwright.com Subject: Electronic Cash for the Net Fails to Catch On http://www.nytimes.com/library/tech/98/11/cyber/articles/28cash.html <fair use snippage> November 28, 1998 Electronic Cash for the Net Fails to Catch On By PETER WAYNER here are two conflicting epigrams that rule the computer industry. The first is that the pioneer gets all of the gold, and the second is that the pioneer gets all of the arrows in the back. Several recent high-profile failures in the electronic payment industry suggest that efforts to develop versions of electronic cash for the Internet are so far reaping more arrows than riches. Christine M. Thompson The most recent signal came as <http://www.nytimes.com/library/tech/98/11/cyber/articles/#1>Digicash, a closely watched electronic payment company based in Palo Alto, Calif., filed for bankruptcy protection. The company was known for a collection of tools that made it possible for people to spend small amounts of money over the Internet using what is known as a digital wallet, software that handles transactions in a manner similar to cash. One advantage of the Digicash system is that, unlike credit cards, it allowed consumers to make purchases anonymously. While several major banks expressed interest in the Digicash system and a few actually began offering accounts, the company was unable to generate enough mass interest among merchants or consumers. Consumers were reluctant to use Digicash because there weren't many merchants who accepted it, and merchants didn't sign up to participate because consumers weren't demanding it as a payment option. Other companies that have tried to develop digital cash systems haven't fared much better. Last August, another pioneer, First Virtual, shut down its system for processing electronic cash transactions and began to focus on a new business, interactive messaging, according to a company spokeswoman, Cindy Alvarez. Another company, CyberCash, still offers a system called CyberCoin, but most of the company's revenue comes from processing credit card transactions. Industry observers suggest that one reason electronic payment systems haven't taken off is that consumers have become more comfortable using credit cards to make purchases online. Bill Curry, a spokesman for Amazon.com, said credit cards are used for "the overwhelming majority" of transactions on the company's site. "I think the reason is that we do have an encrypted secure server, and we guarantee the transaction. If there are unauthorized charges on your account as a result of shopping at Amazon.com, we'll pay the $50 that's not covered by your credit-card issuers." Bill Trevor, director of customer service at CDNow, said most of CDNow's customers enter their credit-card numbers on the site. "Our experience is showing that in the month of October, roughly four fifths of our customers felt secure enough to put their credit card in our online form. Almost all of the rest are checks or money order. There are a couple of percentage points for people who call us, fax us or e-mail their credit-card number, but it's less than 3 percent." Companies that process credit card transactions have found more success than the wallet-based businesses. CDNow allows customers to send a separate e-mail message with the credit card number encrypted with PGP, a significantly higher-grade of encryption than is normally used to protect most browser-based transactions. Companies that process credit card transactions for e-commerce Web sites have found more success than the wallet-based businesses, like Digicash. Keith Miller is an executive vice president of Ibill, a company that processes credit card transactions for Web merchants. "We looked into that whole thing when we started a couple of years ago," he said, referring to companies that were building separate software packages for processing payments. "Back then, our biggest competitors were the wallet companies. We went after the market saying, why do we need to reinvent something when we have something that works and is simple, easy and quick?" In the end, Ibill chose to make it simple for people to buy something online by typing a credit card number into a browser. The browser uses a security method known as SSL (Secure Socket Layers) to protect the data. This doesn't offer the same protection as the carefully designed wallets, but has so far been acceptable to consumers. This approach has become so popular that one of the wallet pioneers, Cybercash, has developed a similar system and now derives more profits from simple SSL-based credit card transactions than through the wallets the company continues to develop. What remains to be seen is whether digital cash systems will ever find a market. Paul Kocher, an expert on cryptography who has analyzed many digital payment mechanisms, said it would take the support of a major player for an electronic cash system to be successful. "If someone like Visa or IBM threw their weight behind a system and got a lot of backers, it might take off. I don't see how a small company like Digicash could ever get a system deployed and working." Digicash's plans for the future are uncertain, in part because the company must pay off past debts by holding what amounts to an auction of its technology. But the fact that some companies are interested in Digicash's patents indicates that there may still be hope for some sort of electronic payment system. In particular, industry observers say that these systems' ability to allow consumers to make purchases online anonymously may yet prove valuable. <more fair use snippage...> Related Articles <http://www.nytimes.com/library/tech/98/11/biztech/articles/04card.html>Got a Dime? Citibank and Chase End Test of Electronic Cash (November 11, 1998) <http://www.nytimes.com/library/tech/98/06/biztech/articles/22card.1.jpg>Code Br eaker Cracks Smart Cards' Digital Safe (June 22, 1998) Scott Loftesness, the interim chief executive of Digicash, said the company is exploring many different options and has already received one offer for some of its patents. One of the patents provides an easy way for someone to sign or authorize a document without reading it, a process that is often called a "blind signature." This is the foundation for the anonymity Digicash offers its customers and may also have a variety of other untapped applications. Robert Hettinga, a digital cash consultant and one of the organizers of the Financial Cryptography conference held annually in Anguilla, said, "I would like to try to get a syndicate together to buy the [blind signature] patent. We would hold it and license it in a way that everyone could use it. I would be really bummed out if they took that patent and locked it away for another eight years." Others are more cynical about the possibility that any micropayment model will ever become dominant. William Powar, a former Visa executive who is now a venture capitalist in Silicon Valley, said one problem with digital wallet systems is that they are designed for small one-time purchases. "There's no market where pay per use is significant," he said. "Look at the cable model." Powar points out that while newspapers, magazines and cable operators offer one-time consumption options through newsstands or special cable subscriptions, the bulk of their revenue comes from subscriptions and advertising. This suggests to him that micropayment systems won't be a crucial part of the future of the Internet, which would diminish the need for digital cash systems. In the near future, the electronic digital transaction industry is focusing on another goal: processing bills for utilities, credit card companies, telephone companies and others who normally bill customers via postal mail. Several new ventures, like Ibill, as well as established companies like Netscape Communications Corp., are working on technologies to allow consumers to pay their bills online. Netscape's system, called BillerXpert, will let consumers pay bills over the Web using, among other options, the payment mechanism designed by CyberCash. The bill presentment industry hopes to save money on postage while also providing additional services, like personalized content. Related Sites These sites are not part of The New York Times on the Web, and The Times has no control over their content or availability. <http://www.digicash.com>Digicash <http://www.cybercash.com>CyberCash <http://www.amazon.com>Amazon.com <http://www.cdnow.com>CDNow <http://www.ibill.com>Ibill <http://www.netscape.com>Netscape Communications Corp. Peter Wayner at <mailto:pwayner@nytimes.com>pwayner@nytimes.com welcomes your comments and suggestions. <final bit of fair use snippage> --- end forwarded text ----------------- Robert A. Hettinga <mailto: rah@philodox.com> Philodox Financial Technology Evangelism <http://www.philodox.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire' --- end forwarded text ----------------- Robert A. Hettinga <mailto: rah@philodox.com> Philodox Financial Technology Evangelism <http://www.philodox.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'