From baked beans to Bermudan holidays, digital banking hopes to change the way we live.But will virtual money work in the real world?
The world's online shopaholics are apparently no longer quaking at the prospect of cyberhackers making merry with their credit card details judging by the amount of shopping being done over the Net. However, one internet commerce boon long promised has failed to make its appearance: the fabled microtransaction.
Microtransactions are small transactions that can range from fractions of a penny up to a few Pounds that are just too small to be economic given today's commercial cost infrastructure. Today, processing a microtransaction is so dear that vendors may net less than 50 per cent of the revenue on these small sales. Until microtransactions arrive, on-line vendors will have to manoeuvre the buyer into open billing accounts, subscriptions, or membership clubs, a much tougher "sell". If the revolution that the internet has brought business has impressed you, you ain't seen nothing yet compared to what will happen when the means to make money from microtransactions becomes widely available. However, there is more than new technology needed before we can experience the business boon. The technology that micromoney is based on is fairly well understood and accepted. Public and private key encryption techniques have been deployed for some time in a variety of different guises and have provided acceptable levels of security; President Clinton and Taosech Bertie O'Hearn used it last autumn to digitally sign an international accord. However, the potential scale of microtransactions gives conservative financial institutions serious pause before implementing such sweeping access to their coffers. The not-yet-realised of future e-commerce (some say the majority) has been set back by the lack of a widely acceptable payment device for microtransactions. Even the rapid creation of secure credit card payment methods does not solve the problem ( the most exciting business opportunities yet to come involve selling very low price bits of information to a large low-density market. The internet provides the opportunity of marketing chapters of a book, essential information bites, or software that you pay pennies for each time you use it. But so far those pint-sized info bites have had to be given away or paid for by click-through advertising schemes. Jeff Bezos, the entrepreneur that created Amazon.com, the 'Earth's biggest bookstore' has a taken the view that technology creates new markets in two distinct waves. The first wave sees companies simply automating the old way of doing things, improving productivity and cutting costs. Rarely does it replace existing business methods, Bezos said. The sweeping changes that technology can propel come with the second wave of innovation; companies finds that the new technology allows them to completely change the process of their business. Bezos is looking for the day when he can sell pages of books online not books delivered expensively by the hand of a postman. That future will require a way to make microtransactions pay. It is still the source of much conjecture just exactly how many "netizens" there are out there, but estimates range between 30 and 100 million. Even the most conservative projections say that this situation is bound to change given the way that the internet is set to reach homes via set top boxes and even cars and cellular phones in the next few years. Hundreds of millions of users will be "on the net" in one way or another. For companies willing to ride Bezos' second wave, the sky is the limit. Publishing is a prime target for microtransaction revolution. You will buy newspapers by the page or article, reference books by the entry, your favourite cartoons by the day and music by the song. Online gaming will let you wager 10p a go just like down the pub. You will be able to buy online services like those offered by internet search engines, weather predictions, stock tickers and movie reviews without having to buy that information in its current aggregated form. Would you shrink from paying a penny for an Alta Vista search? Probably not and neither would any of the other 20 million users of that internet search facility each month. Do the maths; those millions would be in addition to the substantial advertising revenue that such a busy site earns. There has been slow but continuous development of microtransaction technology. However, few consumers and merchants clasp the new capabilities to their collective bosoms yet. A small handful of companies provide microtransaction systems today. The main players in this field include DigiCash's e-cash, CyberCash's CyberCoin and IBM's MiniPay. Cybercash has hedged its micromoney bets with plans announced in mid-April 99 for a web-based payment solution targeted at first-time merchants that required a quick, easy and safe entry into e-commerce. The new service claims to minimise the impact of launching a new business by offering a payment solution that requires only a browser and a merchant account to get started. This cash register on-demand, however, isn't offering micropayments, although it is based on the same security and encryption technology. Cybercash's website advises that CyberCoin transactions in North America will end in May 1999. Microtransaction pioneers provided the equivalent of electronic "wallets" with tokens for consumers and merchants to use online, and work in concert with a small coterie of innovative banks to settle electronic cash transactions in a similar fashion to ordinary credit cards. DigiCash has been successful in gaining the attention of Deutche Bank, Merita/Eunet (Finland), Den norske Bank (Norway) and BankAustria here in Europe. Emphasising the slow start that micromoney has had, this leading proponent of the complex of financial transaction and security technology has filed for a Chapter 11 reorganisation under US insolvency laws. DigiCash Inc. last November announced that it sought protection under Chapter 11 reorganisation to allow it to pursue strategic alternatives for its electronic cash (e-cash) products and the associated intellectual assets pioneered by DigiCash. According to Scott Loftesness, interim CEO of DigiCash: "The company is exploring a range of potential alternatives including working with major strategic players to finance the market development of e-cash or the sale and/or licensing of the Company's intellectual property portfolio." Loftesness added: "Electronic cash, as it has been developed by DigiCash, is an important and inevitable payment solution in the world of global electronic commerce." Brave words given that the micromoney revolution seems stalled at the starting gate. The DigiCash payment solution in use by banks in Europe and Australia are continuing to add to their respective consumer and merchant e-cash acceptance networks, according to Loftesness. CyberCoin has joined with Barclays to create BarclayCoin that you can use to buy weather predictions direct from the UK Met Office books or a recipe for Coriander Chicken. A small step (25p is the smallest increment) but is it a necessary one? What has been missing from the other micromoney efforts is the backing of a substantial financial partner. It may be the software industry itself that will make the first big push towards microtransactions as they find that the traditional means of selling their products reaches saturation. The answer that the software companies are pinning hopes on is microtransaction-mediated, usage-based pricing. Why pay hundred of Pounds for word processor software if there was a way to pay 50p every day you use it, updated frequently and bugs fixed continuously. Marketing research firm Forrester says that the microtransaction market will pick up in three to five years, as big players like Visa Cash, Mondex International, and American Express make smart cards more readily available to computer users. Familiarity is important for gaining consumer confidence and smart cards have the benefit that they can be used in both the online and offline world. However, if smartcards are going to be the way forward, the acceptance of micromoney will depend on PCs, PDAs, telephones, modems and other devices having slots to read those cards. This could be another brake on the technology. In the final analysis it is consumer behaviour and not technology or commercial interests that will drive the acceptance of electronic commerce with microtransactions. When it all comes together, there will be many fortunes to be made a penny at a time.
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