E-money

[David Farber <farber () central cis upenn edu>]

GOING DUTCH ON THE INTERNET


Mike Hewitt finds 'virtual money' could be the answer to cash-flow problems


With the recent announcement of the Mondex "smart" credit card and other
such financial innovations, the concept of digital cash seems to be much in
vogue at the moment. Yet it is hardly a new idea.
For most practical purposes, money has in fact been digital for decades.
Take payment by cheque. Were I to send a cheque for, say, #200 to my
accountant, my bank would not then dispatch a little man with a wheelbarrow
heaped full of pound coins to his bank. At this level, all that happens is
that credit points are subtracted from one bank's computer and passed on to
another. No physical transfer of currency takes place. This holds true for
most other types of payment, save perhaps for those to some used car
salesmen.
In essence, this is the concept behind E-Cash, a "virtual cash" service
being offered by a Dutch company, Digicash. When and if the system becomes
fully established-several large financial institutions are interested-
users of any personal computer will be able to send money over :he
Internet, the global information network, to each other or to E-Cash
registered vendors, as easily and securely as electronic mail messages.
There are two types of E-Cash user: the consumer and the retailer. Each has
their own version of the E-Cash software. Consumers can download the
"client" software to their computer's hard disk free of charge from the
E-Cash server on the Internet. They then use the software or logging on to
the server and registering.
The procedure is the same as registering with a conferencing system like
Cix or Compuserve; credit card or bank details are entered on-line,
together with security details, such as passwords. To access their cash,
users log on, specify the amount required and click on "OK". This is then
downloaded to their computer in E-Cash units. Simultaneously, their credit
card or bank account is debited by that sum.
At this stage, users are left with a hard disk full of "virtual cash". If
anyone tried to mug them and steal it, it would be of no use without the
special password. Then again, E-Cash is of no use until you can find a
retailer who accepts it, in exactly the same way as American Express cards
are just pieces of plastic until you find a shop willing to honour them. So
who is likely to sign up?
"The niche for electronic money is primarily for low-value purchases, of
typically less than (pounds)10," according to David Chaum, the managing director
of Digicash. "Here, cheques are impractical. This is especially so if the
merchant is in another country, using a different currency. Currency
conversion charges would render low-value international transactions
uneconomic. Similarly, it isn't cost-effective for small dealers to take
such a small sum by credit card because of the individual transaction
surcharges imposed by the credit card companies."
Mr Chaum believes E-cash transaction surcharges will be far less than those
for credit cards, encouraging smaller businesses, such as takeaway food
outlets and small software houses, to sign up.
In particular, he sees E-Cash giving a boost to "shareware"-programs which
are freely distributed and require users to then register and pay for them.
"Most people don't pay for their shareware," he says. "It's not necessarily
because they're dishonest, but because there's no satisfactory mechanism
for paying for it. With E-cash, there will be, so encouraging more to be
written."
So retailers will advertise their willingness to take E-cash, in the same
way that shops place credit card symbols in their windows. Buyers will then
contact the retailer, place the order, and Email the money over the
Internet. That sum will then be subtracted from the buyer's hard disk and I
transferred to the vendor's.
On each occasion, a small percentage of the sum received by the retailer -
a transaction charge-will go to Digicash. Buyers can carry on making
purchases in this way until their stock of virtual cash is exhausted.
E-cash can also be transferred between individual users, without
transaction charges being incurred. However, Digicash has ensured that its
server is intelligent enough to recognise when private individuals are
processing multiple transactions, perhaps trying to act as retailers
without
* registering as such E-cash accrued by retailers and any surplus left on a
user's hard disk can be converted back to "hard currency" at any time,
simply by uploading it back to the E-cash server, which then automatically
credits the users' bank account.
In due course, systems such as E-cash may mark the end of "Your cheque is
in the post" as an excuse. They may yet inaugurate another variety,
however: "Your cash is in a bad hard disk sector," perhaps?


Dept. of Computing Science, University of Newcastle, Newcastle upon Tyne,
NE1 7RU, UK
EMAIL = Brian.Randell () newcastle ac uk   PHONE = +44 91 222 7923
FAX = +44 91 222 8232