Re: Bypassing the Digicash Patents
When one combines the transactional economic advantages of DBC: no customer accounts, statement generation, little or no need for dispute resolution and the economies of using the Net for settlement, with the still considerable marketing costs, the likely differential between DBC and CC/ACH is closer to one order of magnitude at best.
Again, I still hold out for three or four.
This is still considerable, however, and if properly branded and marketed could significantly displace current competition, for lower value transactions. The overhead of CC discounts is keenly watched by merchants. If a trusted DBC issuer/agent offered 1.0% fees (especially to on-line merchants) it would get noticed quickly.
Agreed. However, when it happens, it'll probably be more significant than that. I think removing 3 or 4 extra zeroes from the status quo is probably what people should try to do when developing this stuff. I think that the technology offers us at least that much slack, and probably more.
Remember, it *is* supposed to change the world. :-).
If I grant that you're right that DBCs will be 3-4 orders of magnitude cheaper than the book-entry approaches, and I'm ready yet, there is still the issue of whether such savings can be quickly passed on to the merchant and consumer, and thus spark this revoltion. Consider this, if a DBC-based system were to garner 3% (about what it might take to get noticed by the consumer, retail and business markets) of the GDP's $4 trillion in transactions, or about $120 billion, and the transaction fees were $0.0025, this would generate about $300 million in fees. This is about what Western Union International generates in fees, a very respectable sized business. But how much marketing and branding expenditures would it take to get there? All financial products which attempted to reach a broad market and have a significant impact have required, in the past, significant up-front marketing expenses (VISA succeeded because BankAmericard spent in the $10s million per year range). Unless the Net will enable a 3-4 orders of magnitude reduction in such expenses, amounting to an historic bootstrap, it is difficult to see how this will occur without a white knight. A similar situation is occuring in cellular. Prices are plummeting because many new companies are building out competitive PCS networks and forward pricing their services to gain market share and economies of scale. These new players have deep pockets (or are backed by those with deep pockets). To wrench away the bank and credit card francshise from the established players may require similar sized investments. --Steve PGP mail preferred Fingerprint: FE 90 1A 95 9D EA 8D 61 81 2E CC A9 A4 4A FB A9 Key available on BAL server, http://www-swiss.ai.mit.edu/~bal/pks-toplev.html --------------------------------------------------------------------- Steve Schear | tel: (702) 658-2654 CEO | fax: (702) 658-2673 First ECache Corporation | 7075 West Gowan Road | Suite 2148 | Las Vegas, NV 89129 | Internet: azur@netcom.com --------------------------------------------------------------------- "I know not what instruments others may use, but as for me, give me Ecache or give me debt."
At 10:00 pm -0400 on 5/5/97, Steve Schear wrote:
If I grant that you're right that DBCs will be 3-4 orders of magnitude cheaper than the book-entry approaches, and I'm ready yet, there is still the issue of whether such savings can be quickly passed on to the merchant and consumer, and thus spark this revoltion.
I actually don't care about the merchant and consumer. The hole you pour the cost savings into belongs to the people clearing the trades, the trustee and the underwriter. They'll take care of the consumer and the merchant. Again, the reason we have ATMs is because they put tellers out of work. If we can move that decimal point three or four places to the left with strong financial cryptography, then we won't have a spark, we'll have a Chixalub event. :-).
Consider this, if a DBC-based system were to garner 3% (about what it might take to get noticed by the consumer, retail and business markets) of the GDP's $4 trillion in transactions, or about $120 billion, and the transaction fees were $0.0025, this would generate about $300 million in fees. This is about what Western Union International generates in fees, a very respectable sized business. But how much marketing and branding expenditures would it take to get there? All financial products which attempted to reach a broad market and have a significant impact have required, in the past, significant up-front marketing expenses (VISA succeeded because BankAmericard spent in the $10s million per year range). Unless the Net will enable a 3-4 orders of magnitude reduction in such expenses, amounting to an historic bootstrap, it is difficult to see how this will occur without a white knight.
"Branding" is not the issue here. What we're talking about is the creation of exactly the opposite, what economists call "perfect" competition, like in commodities markets, where one soybean is as good as another. Fungible, in other words. In the bond market, once you have two bonds which are equivalent in credit rating, call structure, etc., effectively equivalent in total return, in other words, you don't care who issues it. The way we get to this is to exponentially increase the number of underwriters, which is what Moore's Law gives us in the form of those underwriting microbots I blather on so much about. If the costs of generating that $300 million you're talking about is less than that revenue by any small but appreciable fraction, you have a market. By the way, we should avoid conflating cost with revenue. I'm talking about reducing the cost of delivery by 3 or 4 orders of magnitude. Whatever you charge is what the market will bear. :-). It's the profit margin, not the market size which counts, and I claim that someday you'll have very small entities making very small markets indeed. Remember, the original Mark Twain Bank "mint" ran on a 486. If, as Dr. Myrhvold likes to point out, computers 20 years from now are going to be a million times more powerful, then that creates a scale of financial entity to which $300 million is huge. Way too big to think about. In the meantime, if, due to the entertaining pricing distortions of creating a new market you were able to sell that $300 million worth of total cost for $3 billion, that would be cool, right? At least until you had some competition, and, given Moore's law, that competition could happen pretty quick... Cheers, Bob Hettinga ----------------- Robert Hettinga (rah@shipwright.com), Philodox e$, 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' The e$ Home Page: http://www.shipwright.com/
participants (2)
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azur@netcom.com
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Robert Hettinga