Why E-Cash Isn't a Common Currency
It's payday, and a week's salary has been directly deposited in your bank account. So you log onto your bank's Web site, pay your rent and your credit-card balance, plus the phone and cable-TV bills. Your realize your nephew's birthday is coming up, so you e-mail him some Flooz online currency that could be spent at more than 70 online stores. Now your paycheck is spent, and you never even touched a single greenback, nor signed a single check.
Flooz money? It may sound like a weird name for e-cash, but don't laugh. Some day, this scenario could be commonplace for millions of consumers, as names like Flooz and Beenz enter the financial lexicon as monikers for e-cash. So far, the concept hasn't caught on as quickly in the U.S. as many had hoped. The latest casualty: CyberCash (CYCHQ ), a developer of Internet-payment services and products enabling users to accept e-payments and fund transfers. The company announced on Mar. 5 that it had filed for Chapter 11 bankruptcy protection because it couldn't secure the financing necessary to complete a merger. But the two biggest players -- Beenz.com and Flooz.com -- are persevering.
E-money issuers face daunting obstacles. Security and fraud issues, competition from the current champions of e-commerce payment -- credit and debit cards, shaky business models, and technological challenges all combine to hinder the widespread use of digital cash. Sean Lance, Beenz.com's executive vice-president and chief administration officer, acknowledges that the key challenge is widespread acceptance. "First of all, a currency is only as good as the number of places that it's accepted, and that goes for merchants as well as countries," Lance says. The current payment method of choice is credit cards, but e-money vendors say their products offer more secure and cheaper options.
In a perfect world, consumers could set up a single account online, shop at any cyber vendor, and access the account offline via a cell phone, handheld, or so-called stored-value cards. But a mishmash of platforms exist, and no single standard has emerged yet. Expanding online currencies across borders has led to novel regulatory and legal challenges, not only from country to country, but in the U.S., from state to state.
Progress is slow. The Federal Reserve is looking at the issue, including launching a project to track and compile the amount and type of consumer e-payments in the U.S., says Chuck Wade, senior researcher at CommerceNet, a global nonprofit organization formed to promote and advance e-commerce. But the results of the Fed study won't be available until the end of 2001. Bank regulators here and abroad are reluctant to take action on some issues until they see its findings.
LIKE GREEN STAMPS.
Meanwhile, Beenz.com and Flooz.com continue to lead the charge. These companies are betting that e-money is safer and easier to use online than credit or debit cards. Flooz is an online gift currency sent by e-mail and spent like money at roughly 70 participating online stores. It's sent by consumers as a gift, or used by corporations as an incentive or reward plan.
Beenz, on the other hand, is similar to the Green Stamps popular in the U.S. in the '50s. Retailers can purchase Beenz at the company's Web site and then offer them to their online consumers in exchange for particular behavior, such as purchasing an item, filling out a survey, visiting a Web site, or participating in contests.
Both Beenz.com and Flooz.com are privately held companies not required to file quarterly reports with securities regulators. Their currencies are tied to the U.S. dollar, and they receive a small cut from retailers for every transaction executed with their money. "I've been impressed with the broadening acceptance of Beenz over the past year, and I suspect that its business model has real potential," says CommerceNet's Wade. But the key to success is gaining the kind of scale necessary to lure new millions in venture capital. And right now, the going is very tough.
Flooz CEO Robert Levitan insists that his company can continue to grow despite a sluggish economy. He says the site now has accounts held by about 1.2 million individual and roughly 350 corporate clients. "As the economy falters, do companies have more or less need for sales incentives and consumer promotions?" Levitan says. "There's some indication that they have more need."
Some publicly traded companies are also hoping to cash in on e-money. American Express (AXP ) is marketing a chip-implanted Blue card, a hybrid credit card and smart card. Microsoft (MSFT ) offers Passport, its version of a digital wallet -- software that stores a user's credit-card information on his or her PC and eliminates the need to reenter the data for each online purchase. Citigroup (C ) offers c2it, a person-to-person payment service that allows users to transfer money to each other's savings or checking accounts online.
What the industry appears to really need is a giant brick-and-mortar retailer, such as Wal-Mart or Sears, to get in on the act. More online and offline retailers would then be likely to jump on the e-money bandwagon. "These folks [at stores like Wal-Mart and Sears] are very unhappy with the current online-payment options and the costs they bear, including the cost of fraud," says CommerceNet's Wade. They're the retailers that have the greatest motivation to improve the payments picture, and increasingly they have the wherewithal to move forward on their own.
Not even the most bullish e-money backer believes that the good old greenback would be replaced anytime soon. But at some point, an online-currency standard will have to be adopted for e-commerce to move to the next level. Imagine the ease of doing all your shopping and bill-paying without writing a single check, counting any bills, pulling out a credit card, or having to remember passwords, expiration dates, or PIN numbers. That's the promise of e-money, but fulfillment is still quite a bit away.
By Alan Hughes in New York
Edited by Beth Belton