Ecash Marginal Costs Ecash transaction costs are a cost-accountants brain tease. Here's my take on the topic (this will likely display why I trade currency and bonds and market payment systems and don't do cost accounting, but since I do have overall responsibility for the cost and revenue of ecash it does matter quite a lot to me directly). Hardware - We own and have paid for boxes to run the system. Once we run out of space or CPU power we have to buy more. Thus we have a step function that could be allocated across the transactions being done at a particular time, but is in fact not really marginal. Our experience suggests that the steps are quite high. Telco - Same as above to a degree - we pay for telco and a variety of connection "items". If the volume goes off scale we have to upgrade, making this another step function. It is a periodic bill, and can change, so it is not strictly a "sunk" cost like hardware. People - Here is the likely marginal cost. Bryce correctly notes that when we have to hire a variety of people to take care of more volume we have what can look like a marginal cost. But this is not marginal by transaction, it is marginal by manual or semi-manual item like account set up, money transfer, email or phone conversations, etc. It is entirely concievable that the one penny transactions described in previous posts create no need for additional people, and conversely a high dollar corporate transaction book might suggest a lot of hand holding and manual costs. You should look at most of this cost / benefit stuff on an account basis, not on a transaction basis. The regular banking costs of mailing statements (still required), collecting desposits, producing payments outside of ecash, etc are in fact the bigger parts of the cost. There are also asssociated costs on accounts of holding reserves with the Fed, paying FDIC insurance where appropriate, and explaining the system and its implications to our own executive staff, regulators, and accountants. In all the system and the attending transactions are not considered marginal at this time by me. In time, interbank clearing and currency stuff will generate genuine marginal costs. We have sunk and ongoing hard costs, and perhaps someday some revenue and balances to offset the costs. To my analysis the marginal costs revolve around the manual functions that could become a huge factor depending on the profile of customer that becomes the main user. If they are substantially inactive in manual operations, we may have low marginal costs, if they all need a lot of handholding and manual transactions then each account will cost a lot to handle. Hardware needs, of course, vary with the style of transaction. Marcel made a quick pass at this in a recent post to the ecash list. Just a start off the top of my head. FOT Frank O. Trotter, III - fotiii@crl.com www.marktwain.com - Fax: +1 314 569-4906 --------------------------------------------