December, 1997

Exploring Digital Cash

Business Issues

The prospect of the proliferation of digital money is an exciting one to many, including those in the business world. In fact, business may be the interest group which stands to gain the most if gain is measured in dollars (profits, earnings, sales). For years, companies have invested large amounts of their budgets in marketing activities in order to get recognition for their products and services in the hope that recognition eventually translates into sales, loyalty and increased market share. Of course, these outlays are only considered investment if the benefits outweigh the cost, otherwise they are sadly just expenses. Similarly, companies have taken advantage of the possibilities of global connectivity, (read the world wide web) as a new means and channel medium to augment those marketing activities which they have been carrying out for years. But, instead of replacing those original marketing investments, posting a web page has been used as an additional element within a marketing plan in order to complement traditional promotional activities. Now, business would like to start reaping the benefits from these investments and in a big way. The possibility of an easy to use, low cost payment medium such as digital money is viewed by those in the business world as a means to start reaping these benefits.

How? The use of digital money may expand business opportunities and increase sales over the internet by furnishing an additional method of making and receiving payments to the consumer and to the company. Digital money creates a larger potential customer base becuase a person who has a way to pay for something over the internet is a potential customer. A person who lacks such an instrument is unable to make a purchase over the internet and is therefore, not a potential electronic customer. This takes advantage of customer impulse buying which would lead to increased sales.

Furthermore, if the transaction can take place over the internet, the buyer avoids the cost and possible inconvenience of going to the store and the business avoids or reduces the need to pay rent and maintain a store for his/her physical place of business (physical customer interface) by maintaining an electronic place of business (electronic customer interface). This is a benefit realized through any means of electronic commerce over the internet whether it be digital money, digital checks or credit cards. Thus, the option of paying with digital money enhances the benefits of an electronic place of business.

The use of digital money may expand business opportunities and increase sales over the internet by providing ease of use to the consumer and to the company at a reasonable cost. The proliferation of digital money may increase business volumes if (and possibly only if):

• it provides enhanced benefits from cash (security, anonymity)
• it is as easy or easier to use as cash and credit cards

Quite possibly the most important initial use of digital money would be to use it for charging and making micropayments to view content on the internet. Currently, it is difficult for some and next to impossible for others to charge viewers for the right to view content of web pages like digital books. The most popular method of payment, credit card transactions, is too costly and onerous to be used to charge something like a tenth of a cent per page to view web pages. Currently, intellectual property rights holders have to trust the reader’s willingness to pay for the right to read, print and copy the copyrighted material. If the reader chooses not to pay, there is nothing the content owner can do about it. The possibility of using digital money to extract micropayments then provides a way for business to force compliance of intellectual property law by obliging customers to make their micropayments in order to view said material. This would be a real business opportunity considering the exponential annual growth of the internet as a source for information. Furthermore, it might encourage many businesses to make more intellectual property available over the internet if they knew they would be compensated for it and it would probably increase access to and availability of this material. Of course, if viewers, used to the idea of free content access, do not or cannot accustom themselves to the idea that they have to pay for content, it could possibly curtail the growth of the internet.

The numerous issues surrounding the proliferation of digital money and the shape it eventually takes concern business directly with regard to the expanded business opportunities it presents. But, digital money also concern business inasmuch as it affects its customers. These issues include privacy (read anonymity), security from risk of fraud or loss, cost and ease of use. Customers and business will only resort to digital money as a method of payment if it fulfills certain characteristics that cash and other payment methods exhibit and demonstrates certain enhanced features to make it more attractive, more desirable as a method of payment. Therefore, the use of digital money to purchase things over the internet may depend greatly on how it addresses these consumer requirements and in what form it manifests itself. People’s (customers’ and business’) willingness to use digital money then may be conditioned on many factors such as:

• availability of anonymity to the customer (payor) when making a purchase with digital money
• availability of anonymity to the business (payee) when receiving digital money
• cost (is digital money to be sold by digital money generators at a premium in order to cover their costs?) and ease of acquisition
• cost (is special hardware required on the part of the payor? the payee?) and ease of use
• cost and ease of online verification
• cost and ease of offline verification
• availability, cost and ease of reuse
• cost and ease of cashing at a financial institution
• availability, cost and ease of replacement if lost
• risk of fraud (accepting digital money that was already spent elsewhere)
• risk of fraud (accepting stolen digital money)
• risk of fraud (accepting digital money fraudulently duplicated (bills), digital money fraudulently reused (bills) or increased (smart cards whose security system is corrupted and cash balance increased))
• risk of fraud (ability of someone who fraudulently acquires someone else’s digital money to use that digital money)
• liability for fraud (in the case of a fraud, how much is the payor and/or payee responsible for?)

These issues are very close to the hearts of consumers and business. Before there is to be a mass proliferation of digital money as a new method of payment, these questions will likely have to be answered.

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