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Digital dough fails to rise

April 16, 1999
Web posted at: 6:25 p.m. EDT (2225 GMT)

by Neal Weinberg

Network World Fusion
digital dough graphic


Do you worry about security when using your credit card online?

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(IDG) -- Remember electronic cash, digital dollars or cybercurrency?

The conventional wisdom three years ago was that consumers would never use their credit card numbers on the Internet. So in order for electronic commerce to thrive, highly secure digital money schemes were needed.

Up stepped DigiCash with a cryptography product called e-Cash. CyberCash launched its CyberCoin electronic payment service based on Secure Electronic Transaction (SET), a standard Microsoft and Visa developed for high-powered encryption and authentication of three-way transactions between shoppers, merchants and banks. Both products required consumers to set up an account with a participating bank, download software to create a digital wallet and spend their cyberbucks at participating merchants.

Fast-forward to 1999. E-commerce is booming, and consumers are buying their books, PCs and airline tickets with plain old plastic. Electronic cash transactions haven't even shown up as a blip on the e-commerce radar screen. Looking ahead through 2002, 99% of online transactions will still be made with credit cards, according to Jupiter Communications.
Vendor Service Description
CyberCash InstaBuy Registration system expedites credit card purchases at participating e-commerce sites.
First USA Bank  
Cybergold Customers use credit cards or cash micropayments to buy digital content such as music, videos or software on the Cybergold site.
IdeaLab eWallet Registration system expedites credit card purchases at participating e-commerce sites.
Transactor Networks/
CitiWallet Facilitates credit card purchases at participating e-commerce sites.

DigiCash convinced only one bank in the U.S. to try e-Cash, and Mark Twain Bank in St. Louis closed the book on its trial in September amid tepid consumer response. Two months later, DigiCash ran out of real cash and filed for Chapter 11 bankruptcy. After failing to generate much interest, CyberCash quietly picked up its CyberCoins and went back to the drawing board to develop a new product. And another early player, First Virtual Holdings, moved into the messaging business last year and changed its name to Message Media, Inc.

To sum it up, electronic cash crashed.

If you're about to go live with an e-commerce site, don't worry about setting up an electronic money system for your customers. If direct credit card transactions, backed by Secure Sockets Layer (SSL) encryption, are good enough for popular sites such as and Travelocity, they should be good enough for your firm, too.

So what went wrong with electronic payments? The lesson here is that a simple solution will beat a complicated one every time.

Consumers flat out refused to have anything to do with downloading the software needed to create digital wallets on their PCs. Denis Yaro, executive vice president at CyberCash in Reston, Va., admits ruefully that the company learned that lesson the hard way. "Making people download software was a loser," he says. And tolerance for downloads only got lower as newer, less cybersavvy shoppers went online.

By contrast, the only requirement for SSL is to use an SSL-enabled browser such as Microsoft's Internet Explorer or Netscape's Navigator.

At the same time consumers were balking at electronic money, they were getting over their jitters about making credit card transactions online. "Consumer experience has whittled away at security fears," says Scott Smith, an analyst at Current Analysis in Sterling, Va. Customers made a few purchases, gained confidence and then started diving in. Forrester Research says that consumers spent about $7.8 billion online in 1998.

Web travel site Travelocity earned $285 million in revenue in 1998, all of it through SSL credit card transactions, says Jim Marsicano, vice president and general manager of the Ft. Worth, Texas, company. He has seen a dramatic improvement in customer acceptance of simple credit card transactions.

Marsicano's advice to anyone setting up an e-commerce site is simple: "SSL is going to suit customers just fine." There's plenty of credit card fraud in the world, but he's not aware of a single instance of credit card fraud resulting from a hacker intercepting an encrypted SSL transmission.

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SSL also does the job for Seattle's and its customers. Consumer behavior over the 1998 holiday season indicates that shoppers have "erased that last little bit of doubt" about online shopping, says company spokesman Bill Curry.

Looking ahead, David Stewart, vice president of Global Concepts, an e-commerce consultancy in Norcross, Ga., predicts that SET will never officially die because the credit card companies have too much invested in it. However, by the time SET transaction methods roll out in the U.S., it will be far too late for anyone to care. "SET was too big a mousetrap for what you were trying to catch," Stewart says. "It was overengineered." In trials, SET transactions were slow, cumbersome and unreliable, he says.

SET may be on the ropes, but CyberCash's Yaro argues that electronic cash isn't dead, it's simply taking longer to get off the ground than its backers anticipated. His position is that consumers rejected first-generation SET-based methods but will accept second-generation, thin-wallet options that place a software cookie on a client's PC. CyberCash has even come back with a new product called InstaBuy, which uses SSL security.

In the new setup, information about the shopper, such as credit card account data, shipping address and records of prior transactions, sit on CyberCash's servers, rather than on a client PC. A shopper registers once at the CyberCash site and can make purchases at participating stores with a user ID and password.

But Global Concepts' Stewart is skeptical, noting that CyberCash needs to get all major e-commerce sites to participate for the service to be attractive to shoppers.

The jury is still out on these newly introduced services, but the bottom line is that for any electronic cash system to become popular, it has to be an improvement over the way customers are buying now. And, thus far, electronic cash hasn't been able to make that case.

The battle for mom-and-pop Web shops
April 13, 1999
Virtual pennies may be back from premature death
December 1, 1998
Digital cash to change the nature of money as we know it
October 6, 1998
Internet could make cash obsolete
May 22, 1998

Problems plague SET credit card
(Network World Fusion)
Micropayment firms seek new ways to cash in
(The Industry Standard)
Dutch consumers set for online security with Visa
(The Industry Standard)
Making checks safe for e-commerce
(The Industry Standard)
IBM pushes Net.Commerce partners and hedges bet on SET
(The Industry Standard)

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