September 2000   

There was a time when a goat was pretty good payment for services rendered. The transfer was uncomplicated: it involved handing over the rope. And if the receiver was lucky, the goat paid interest for years (in the form of milk and cheese). Other early payment systems -- bartering beads, for example -- came in handy for buying things like … Manhattan. Now beads of the digital variety are buying everything thing from the latest Stephen King book to electric scooters.

During the twentieth century, consumers entered into a love/hate relationship with plastic money. MasterCard, Visa, American Express … where would we be without them? Sure we would be in a lot less debt; but still, the invention of the plastic payment system (credit cards, then debit cards that take money directly out of a bank account) certainly simplified sales transactions. Grocery store lines began to move faster, and phone and mail orders became more convenient for consumers and merchants alike. Now on the Internet, setting up a credit-card account is an important component of a successful business.

The New Way to Pay

The twenty-first century way to pay is by electronic or digital cash, which allows consumers to pay for goods and services by transmitting a number from one computer to another. These numbers function much like the serial numbers on "real money." They are unique, and represent a specific amount of actual cash.

Unlike credit-card transactions, electronic-cash transactions are anonymous. E-cash works just like paper cash. Once it is withdrawn from an account it does not leave a trail of digital crumbs. E-cash by its nature is portable and therefore more convenient for mobile commerce (Internet-capable cell phones and personal digital assistants).

Consumers deposit money into a special account or a bank. The bank issues numerals for specific amounts, such as $10. The money is withdrawn from a consumer's account in the form of a certificate and transferred into the vendor's account for purchases. Like paper money, it can be reused as long as there's money in the bank to back it up.

The Cash Is in the Mail…

Rather than send a check, a buyer can send electronic cash over the Internet in encoded email. This convenience has made electronic pay systems like Pay Pal extremely popular with online auction sites where individuals are buying from one another. A person can even send e-cash to a child at college or to a family member or friend who lives across town or on the other side of the world.

The Pitfalls

Electronic cash is not always protected in the case of theft or fraud like credit cards are. In a recent case, a dealer who knew how to get around the system scammed several Yahoo! auction participants who used Pay Pal. They were originally told there was no way to recover their funds, but after much publicity, the money was refunded.

Smart Cards

Smart cards can hold cash, personal ID information, house and office keys, subway tokens, medical history, and more. These all-purpose cards are implanted with chips that can interface with everything from a police officer's hand-held device to motel's database or a sporting event's electronic box office.

Network Payment Engines

Web sites that want to take advantage of all the new payment technologies by handling credit cards, debit cards, smart cards, and electronic cash payments with ease, need a system that will handle transactions smoothly. Sun Microsystems and Cisco Systems have designed a universal payment server that can integrate a variety of payment systems. One of the first users of this new engine is Visa. With a product called Visa Direct Exchange, member banks have the ability to launch new payment technologies that allow for worldwide round-the-clock financial exchanges. Visa Direct Exchange also provides consumers and merchants with the ability to add new payment systems later on as they are developed. The system expects to process $1 trillion in payments annually. That's a lot of goats.

Electronic Cash Payment Systems

A short list of providers:

Pay Pal - A U.S.-based system that allows individuals in the United States to send money to each other via email.

First-E - A European, Internet-only bank.

Mondex - Electronic cash that is made available via "smart card."

eCash (formerly DigiCash) - One of the early developers of electronic payment systems.