When Will E-Cash Jingle in Your E-Pocket?

Already successful in Europe, e-cash is hitting the U.S. -- with answers and questions.

Udo Flohr and Jelena Rupnik

It shouldn't come as a surprise that the first major U.S. trial of electronic cash is taking place in New York City. Try buying a newspaper or a hot dog in Manhattan with a $50 bill or a credit card!

Such is the promise of e-cash on a chip: Everyday transactions will be easier, faster, and more secure with e-cash than with cash, checks, or credit cards. E-cash targets transactions of about $30 or l ess and will coexist with, rather th an replace, other payment instruments for the foreseeable future.

According to a report compiled by Ovum, a London-based consulting group, worldwide consumer payments have a value of US $7 trillion per year, 65 percent of which are in cash. (In fact, consumers hold most of the cash in circulation -- about 60 percent.) This US $4.5-trillion market slice is what e-cash aims at .

There are two fundamental approaches to e-cash: smartcard-based and software-only. Visa's Stored Value Card is an example of the smartcard-based approach. The best-known example of the software-only approach, which aims mostly at Internet usage, is Ecash, from DigiCash (Amsterdam). You can use Ecash on-line (on the Web, for example) or through e-mail, and it's suitable for other digital media, including smartcards. The Ecash system ensures privacy with "blind signatures," which authenticate payments without revealing the payer's identity. Several banks have started issuing Ec ash, and a rapidly growing number of cyber-merchants now accept it.

Digital money sent across the Internet still requires digital signatures (which smartcards have the ability to generate). However, the majority of consumers still don't have access to PCs or the Internet. Therefore, the two main approaches will probably merge.

E-cash is always prepaid, as opposed to credit (pay later) cards and debit (directly access an account) cards. The issuing body -- not necessarily a bank -- allocates value to a coded digital message, which is stored on a smartcard or a computer system and guarantees a fixed reimbursement value, often through specialist "e-cash clearing" services.

The driving force behind e-cash is cost reduction. Handling physical cash is expensive for banks and payees, and paper checks are even more so. E-cash payments, on the other hand, can be authenticated off-line. Transactions are fast and convenient, and they reduce administrative overhead. In addition, e-ca sh is a proven technology: While trials are just beginning in the U.S., approximately 50 e-cash systems are already operational around the world.

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Where to Find

On-line papers: 


Internet: 
http://www.wnet.org/fom/index.html

Internet: 
http://www.fame.org/research/library/cw-001.htm



The DigiCash Web site:


Internet: 
http://www.digicash.com



Research at IBM:


Internet: 
http://www.ibm.net.il/ibm_il/int-lab/mpay




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Circulation of Digital Cash

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E-cash transmutes between digital and actual money as transactions proceed between various entities.

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Digital Cash in 1998

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AT A GLANCE: E-cash is a way to conduct financial transactions with electronic debits and credits. You can use it in the form of a smartcard that you carry or via the Internet.

WHO SUPPORTS IT: Cybercash, Digicash, IBM, MasterCard, and Microsoft. Banks include Advance Bank (Australia), Deutsche Bank (Germany), Mark Twain Bank (Missouri, U.S.), and Meri ta Bank/EUnet (Finland).