Brother, Can You Spare a Virtual Dime?

CyberCash Inc. wants to create the information age's medium of exchange. In an era when concepts such as virtual reality, virtual corporation and virtual networks have entered the lexicon, CyberCash wants to add another one: virtual money, or as the company calls it, electronic cash.

CyberCash is trying to catch a wave created by the growing demand for electronic transaction services, the increasing ubiquity of PCs, and the exploding popularity of online services in general and the Internet in particular. Indeed, the Reston, Va., firm hopes to aid, abet and cash in on the Internet's transformation from an academic information exchange network to a home shopping network.

The 25-employee, Reston, Va., start-up was founded in 1994 to facilitate electronic commerce on the Internet using traditional and novel means of payment, and is developing software for consumers to shop on the Net with credit cards, debits cards, and ultimately - electronic cash. In essence, the company is positioning itself as an electronic middleman between consumers, merchants and banks, ensuring the security, privacy and validity of online transactions.

Initially, CyberCash software will allow shoppers to make credit card purchases on the Net. A CyberCash server sits at the heart of each transaction, forwarding orders, invoices, card numbers, and credit authorizations back and forth between consumers, merchants, banks and credit processing centers. CyberCash says the entire process is encrypted for security using software developed by Trusted Information Systems, Enterprise Integration Technologies, and RSA Data Security. CyberCash also employs the banking industry's digital encryption standard.

The company is launching a pilot program with Wells Fargo Bank of San Francisco this month to test its credit card shopping service, said Magdalena Yesil, CyberCash's vice president of marketing, and if all goes well, she added, the service will be rolled out to other banks by the end of the second quarter.

CyberCash faces formidable competition in the gold rush to provide cybersecurity for credit card transactions from the likes of Microsoft, Visa, MasterCard, Netscape Communications and others. But the company boasts co-founder Bill Melton, whose wealth of experience and connections in the world of electronic commerce may well be CyberCash's biggest asset.

In 1971, Melton founded Real-Share, a database service that pioneered the use of minicomputers and voice response systems in the financial world. In 1981, he founded VeriFone, now the nation's leading supplier of credit card authorization terminals. In 1991, Melton provided start-up funds for Transaction Network Services, which handles more than 3 million electronic transactions a day for many of the nation's largest credit card processors. Melton sits on the board of TNS, a CyberCash partner, as well as America Online, which is but one of the major online services Yesil said wants to combine CyberCash's software into its interface.

Ensuring safe credit card transactions on the Internet is daunting enough, but the company is betting the real payoff will be in electronic cash, which it hopes will make money flow like information on the Internet.

The company's vision for E-cash is based on anonymous, non-interest bearing CyberCash accounts in participating banks. Under the system, depositors transfer money in and out of these virtual accounts from their standard accounts via computer and use E-cash to make purchases or receive payment over the Net. To complete a sale, CyberCash software instantly verifies the existence of real money to back up its E-money and authorizes the transfer of funds.

"It's like sending a check over the Internet, but unlike a check, electronic cash never bounces," explained Yesil.

E-cash is also designed for transactions too small to justify a credit card purchase and can settle business between individuals for less than the cost of a stamp.

Yesil said potential users include anyone in an online environment, be it the Internet, commercial services, or internal corporate networks. "I think it will eventually be accepted. People already accept their credit cards," said Mark Frieser, senior analyst with Jupiter Communications. "Once they make people feel secure, we will see the same kind of progression." CyberCash believes electronic cash will come into its own as a means of exchange for intellectual property on the Net.

"For all those with all the intellectual property on the Net who want to sell their software, poetry and so on, we believe electronic cash will be the preferred way of being paid," Yesil said.

Eventually, she added, secure credit card transactions will become a "plain vanilla" service incorporated into most software and online user interfaces, while digital money becomes the company's electronic cash cow.

"There will be large volumes of business from both, but in the long-term, electronic cash will be a more significant percentage of our revenues," she said. Only one other company, Netherlands-based DigiCash, is attempting digital money, and the two companies are discussing possible licensing agreements, Yesil said.

Visa, MasterCard, Microsoft and others, she added, aren't really competition, since they are focused solely on the credit card business, and there is no reason CyberCash can't work with them and collaborate on electronic cash. "The biggest potential competitor out there today is probably the cash in people's pockets."

But if CyberCash is betting its future on E-cash, what obstacles exist in making it the lingua franca of the financial world? Yesil said the immediate challenge is technological, perfecting and disseminating the software.

"In the long term, it's getting the world to accept another way of doing business," she said. "We are toying around with how to make this an international environment, the Internet is international, there's no getting away from it."

Yesil said CyberCash will roll out E-cash in 1995, begin to realize volume in 1996 and start hitting its stride by 1997. "We've had an incredible amount of interest from merchants," she said. "We expect we will have millions of users."

The Internet today has approximately 35 million users, but the value of business done over the Net is estimated at only $10 million, according to Jayne Levin, editor of the Internet Letter.

Indeed, according to a recent report, "Online's Future," by Forrester Research Inc., consumers on the Internet and the phenomenal interest in the Internet has yet to translate into much cyber-commerce. "Consumers like surfing the Net," said Mary Modahl, an analyst with Forrester and author of the report. "But no one sells anything. A dozen pizzas, two or three flower bouquets a week, a dozen subscriptions -- these are the dismal sales figures for the bold newcomers on the Net."

However, she added, once technological problems of security, bandwidth and user-friendliness are solved, in approximately three years, the Internet, via the World Wide Web, will "offer business significant promise."

Frieser also points out that only about one-third of U.S. households have a personal computer, with just seven percent of that group subscribing to any kind of online service at all. While he believes some form of electronic cash is inevitable and desirable, Frieser thinks the duration of the revolution must be measured in decades, rather than years.

"I think it will take 20 years before it gets to be ubiquitous. Making this international is where it will actually stand or fall," said Frieser. "They may have a few million people using it in four or five years, but that is certainly not a mass market."