Too soon to bank on cybercash

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The Independent Online
Cash - it's dirty, it falls down the back of the sofa, all those coins are heavy, and paper notes get torn. In this new, digital, fast-moving world surely we do can better?

Cash - it's dirty, it falls down the back of the sofa, all those coins are heavy, and paper notes get torn. In this new, digital, fast-moving world surely we do can better?

Now, after several false starts, it finally looks as if we might get the e-cash we deserve. The rapid spread of the Internet and the potential for mobile phones to evolve into the electronic purses of the future are giving the cybercash developers the push they needed.

Mondex is probably the best- known electronic cash system in the UK. Using smart cards, a consortium of UK banks launched the trials in Swindon in 1995. Some 30,000 cards were issued which could be used in place of cash to buy virtually everything, with payments ranging from 1p to £200. The cards were free and the money was put on to them by ATM machines.

But Mondex's take-up was slowed by what has been called "the Swindon paradox" by David Birch, the marketing director of the e-commerce consultancy Hyperion. "The problem was, you could go into a jewellers and buy a gold ring but you couldn't use the card in a parking meter," he says. Today, Mondex is used by 70,000 students at five universities (Exeter, Aston, Nottingham, York and Edinburgh). But the trials halted last July and there are no firm rollout plans.

More recently, the growth of the Internet has given the whole electronic cash debate a massive boost. But here again expectations have been thwarted. Systems such as DigiCash and CyberCoin - developed in the US and marketed worldwide - swallowed millions of dollars in developing and marketing but gained very few customers. DigiCash had to seek Chapter 11 bankruptcy protection while CyberCash is winding down its Cybercoin operation. This debacle for early entrants has left a bad taste.

These electronic cash systems operated by installing a secure electronic "wallet" on the consumer's PC. The wallet was then topped up with cash, usually by agreeing a sum to be debited from the customer's pre-existing credit cards.

The take-up has been slowed for many reasons, but mainly because computer users loathe downloading large pieces of software. In the UK, with its expensive local phone charges, this is particularly true. Barclays signed up with CyberCoin and launched BarclayCoin in October 1997. But its website ( reveals few takers. The half dozen or so companies that Barclays shows as users of its technologies seem not to have updated their web pages for more than a year. Barclays said it would soldier on with CyberCoin but refused to say how many people had signed up to a project which, after two years, is still being described as a pilot.

NatWest is in the process of launching a new system called Magex. This, claims Andrew Farrow, head of business development at Magex, is based on a different business model. Magex will piggy-back an electronic cash system on to the back of a system that manages the right to download digitally delivered product. "Music will drive the marketplace," Mr Farrow confidently predicts. With the Internet allowing an almost totally free exchange of digital material, piracy is perceived as a terrible problem for sectors such as the recorded music business.

Companies know they cannot ignore the Internet because, if they do not supply music, someone else will. The problem is how to charge for music and other digital goods and keep control of them. With the Magex system, the user pays for a piece of music for example, and then can play it, but only on the machine with the Magex wallet.

While Mr Farrow believes that Internet music lovers who are used to downloading large files of music will not balk at downloading the five megabytes needed for the wallet and account management software (equivalent to very roughly 500 e-mails or more), others disagree. David Birch at Hyperion is scathing. "It hasn't got a hope. Anything that requires you to download a big complicated wallet is a completely pointless exercise. It will never fly."

More simple closed systems are beginning to crop up on the Internet. Loot, the classified advertisement company, has a website where customers pay £1.30 to look at current ads (ads over two days old can be viewed free), but if they buy a "book" of 10 electronic "coupons", stored on their PC, the price drops to just 90p.

With payments at this level, in a closed system the cost of using credit cards for cash-like transactions on the Internet is bearable - just. But for smaller transactions new types of currency are required. Some analysts consider micropayments cover anything up to 10p, but others call the very small payments, as low as one tenth of a penny, "nano payments".

Nano payments are attracting a certain amount of glamour. The thinking here is that for successful operations, such as the massive search engines that receive millions of visits a day, even a payment of a penny a search would provide significant revenue streams and would probably not deter visitors. The economics of such a nano payment system rest on reaching some sort of critical mass.

No one is going to bother downloading a wallet just to pay one penny for something that is currently free; and no one will go to a one-penny payment system until they are confident that 90 per cent of their competitors have already moved over to a payment system like this.

One way around this could be to get the nano payment system up and running under another guise. likes to style its eponymous product as an Internet currency but, for the moment, it operates more like good old Green Shield stamps. Website owners buy Beenz and offer them on their site. Visitors who register on the site, or purchase something, are given a small number of Beenz. sells its Beenz at one cent each and redeems them at 0.5 cents each. A nice spread. "But there are no charges," says Charles Cohen, founder and chief technology officer. "There are absolutely no transaction charges, no membership char-ges, nothing." The company will shortly sign up its 200th trader and has 170,000 registered users. The experience for the user is kept simple as all of the transactions are carried out on's servers with only a user identification stored on the customer's PC.

As Beenz becomes more common it could turn into a digital currency. "Two things stop this happening," says Mr Cohen. "First we don't sell Beenz directly to the public and secondly you cannot give them to your mate."

The first problem is easily solved. If Beenz were to migrate towards a true digital currency, Mr Cohen would be happy to sell Beenz to end users with only a modest mark up over their redemption value. But he cautions about being too excited at the prospect just yet. The second part of the equation is still missing. The easy transfer of Beenz or any other electronic cash between individuals is fraught with problems.

And Beenz are firmly locked inside the PC world - at least for now. At the moment, for security reasons, they are not transferable between individuals. The company is already busy talking to mobile phone companies who could pay customers Beenz to accept adverts delivered via the Internet enabled mobile phones that will be common by the end of next year.

In fact, mobile phones look like one of the most likely candidates to become our electronic purse. At the heart of all digital mobile phones is a smartcard. This incorporates robust authentication technology, making it an ideal platform for electronic cash. Mobile phones could connect into tills by wireless or infrared connections. Transactions could be resolved through either the customer's mobile phone account or into some sort of linked bank account. It is perhaps no coincidence that Orange is working closely with Nat West to develop a mobile phone banking system. From there it is just a small step to offering full electronic cash services.

But that small step is in fact a huge one. Every shop that wanted to receive e-cash would have to install new equipment. If there were competing systems, which system should be installed? In fact, scratch the surface and you see why the phone companies regard the prospects for e-cash as something of a poisoned chalice. Getting this form of e-cash off the ground starts to look every bit as hard as previous attempts.

Ian Germer, head of product development at Vodafone, says he does not expect to see "substantial activity" in this sector until 2001 and agrees that even this is optimistic. But when the technology and the business agreements come into place, and that could be a long wait, expect the companies to enter the sector like a steam train

Household Finance Corp, the company behind the Goldfish credit card has announced it plans to launch a special Internet-linked credit card called Marbles. But Mr Birch points out that by the end of next year nearly all new UK credit and debit cards will include a smartcard. Companies are already looking at building smartcard readers into a PC and in the US, Amex, which has just launched a special Internet credit card, is giving away a free smartcard reader with every credit card sent out. And don't forget that all digital TV boxes include a smart card reader - this is another potentially lucrative sector.

As well as the mobile phone companies and banks Mr Birch adds a third, less obvious contender as the potential provider of our electronic cash - the mass transit companies. "The Hong Kong mass transit system does more smart card transactions in one day than the VisaCash [another electronic cash system] and Mondex systems have ever done," says Mr Birch. The Transit company has six million cards in circulation, with the travel card used also for phone boxes, drinks machines and snack bars. It handles seven million transactions per day.

Mr Birch says London transport is soon to start offering smart cards to underground customers and Stagecoach is part of a consortium which has taken an option on the first UK licence for the Belgian Proton electronic smartcard purse system, currently the market leader with several million cards in use in Belgium, Holland, Sweden and several other countries.

The prospects for electronic cash are bright, but then they have looked bright for years now. The problem is the introduction of a commercially successful system. When that will happen is anyone's guess.