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e-money: Press Review II: NYT article on DigiCash Chapt. 11

this message entered the list on Tue, 1 Dec 1998 15:27:43 +0100
it has been sent by Robert Hettinga

...Wherein I get quoted in the NYT using "bummed out".

Oh, well. At least they spelled my name right... :-).

Robert Hettinga

--- begin forwarded text

<fair use snippage>

November 28, 1998

Electronic Cash for the Net Fails to Catch On


 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
<>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

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,
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, 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

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.

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Related Articles
<> Got
a Dime? Citibank and Chase End Test of Electronic Cash
(November 11, 1998)

<> 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

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.





Netscape Communications Corp.

Peter Wayner at welcomes
your comments and suggestions.

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--- end forwarded text

Robert A. Hettinga
Philodox Financial Technology Evangelism
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'

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